Tax questions

March 31, 2000

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Our company just offered us the option of a pre-tax deduction for parking fees that are deducted from our weekly pay checks. How does taking a pre-tax deduction benefit me? Is there an alternative deduction I can take if I continue to have the fee withheld from my weekly pay? Is it more beneficial? Is there a downside?

By taking a pre-tax deduction out of your weekly paycheck for the benefit of qualified parking expense, you will reduce the income tax and FICA tax owed on such amounts.

Note, there is a maximum amount of $175 a month that can be excluded from such tax pursuant to the Qualified Transportation Fringe benefit rules.

Any additional monthly parking expenditures would constitute taxable income in the form of W-2 income, subject to income and FICA tax.

Since the parking would most likely constitute a personal expenditure, it would not otherwise be deductible by you on Schedule A, Form 1040, as a miscellaneous itemized deduction. Therefore, it is advisable to join the plan.

A downside is that employer contributions to a qualified profit-sharing retirement plan based on taxable wages would be less since your compensation is reduced by the qualified parking expenditures.

Keith E. Huebel, CPA, Horan & Associates Financial Advisors, Ltd.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

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