Greater Madison MPO

Parking Cash Out

Employers may establish a Parking Cash Out program whereby employees may "cash out" the value of their employer-provided parking, by choosing to forego a parking space and instead receive the taxable cash value of the space or a tax-free transportation fringe benefit for transit or vanpool expenses, up to the IRS monthly maximum for that year.

Parking cash out works like this: the employer establishes a monthly value for a parking space at its site. Each employee could then choose among various commuting options in the following manner:

  1. Keep the parking space with no charge.
  2. Give up the parking space, commute via transit or vanpool, and receive the value of the parking space in tax-free payment of transit or vanpool fare (see the IRS Employer’s Tax Guide to Fringe Benefits).
  3. Join a carpool and agree to give up all but one of the carpoolers' parking spaces. The carpoolers receive a share of the taxable cash payment each month.
  4. Give up the parking space and choose to bicycle or walk to work and receive the value of the parking space in taxable income.

Note that if an employee chooses cash instead of a tax-free transit or vanpool benefit, they will pay payroll and income tax on the amount, and the employer will incur payroll taxes.