Our beloved Congress has granted nice tax breaks for some transportation-related employee fringe benefits. Several of these breaks are intended to encourage you to give up your evil, gas-guzzling, pollution-spewing vehicle when commuting to work. If your employer offers these tax-favored fringes, you should probably take advantage. After all, you might not be able to find much gasoline at any price after our entire oil supply winds up in the Gulf of Mexico.

Favorable Tax Treatment

The employer-provided benefits I m about to explain are treated as tax-free fringes, within limits. That means their value won t be included in your taxable salary. Therefore, you won t owe any federal income tax, state income tax (if you have one), Social Security tax, or Medicare tax on the value.

If your company is unwilling to pay for these fringes, it may allow you to set aside part of your salary to pay for them yourself. This is a so-called salary reduction arrangement. The amount you set aside is subtracted from your taxable income. Therefore, you won t owe any federal or state income taxes or any Social Security or Medicare taxes on the amount you set aside. In effect, the salary reduction arrangement allows you to pay commuting costs with pretax dollars rather than paying them with what s left after taxes. While a salary reduction deal isn t nearly as good as having your employer pay, it still helps you out by cutting your taxes.

Now for the specifics on tax-favored transportation fringes.

Transit Passes and Van Pooling

Through the end of 2010, employer-provided mass transit passes for train, subway and bus systems are tax free up to a monthly limit of $230. Last year s stimulus legislation increased the tax-free limit from $120 to the current $230. It s scheduled to fall back to around $120 in 2011, but I expect Congress to extend the current higher limit through at least 2011.

Employer-provided van pooling is also tax free up to a monthly limit of $230. This benefit was fairly common a few years ago, but the concept never really caught on because it s inconvenient for the riders, and employers have to comply with some burdensome tax rules. If your company still offers van pooling, and it works for you, go for it.

If your company doesn t pay for these fringes, it might offer a tax-saving salary reduction arrangement instead. For example, say you set aside the maximum $230 per month to pay for transit passes with your own money. If you are in the 25% federal income tax bracket, you could save up to $900 a year in federal income, Social Security and Medicare taxes. We could all use an extra 900 bucks!

Parking Allowance

Employer-provided parking allowances are tax-free up to a monthly limit of $230. You can be given this fringe on top of the tax-free $230 a month for transit passes. For example, you could get $230 per month to pay for the train plus another $230 to pay for the park and ride. Or you can simply drive to work and get $230 in tax-free bucks to help cover parking near the office.

Once again, if your company doesn t pay for these fringes, it might offer a salary reduction arrangement instead. Say you set aside $230 a month for the train and another $230 for the park and ride. If you re in the 25% federal income tax bracket, you could save up to $1,800 a year in federal taxes. Not bad for turning in a form or two to the company.

Bicycle Commuting Allowance

Last and least, your employer can give you up to $20 per month to cover buying, repairing and storing a bicycle that you regularly use to commute to work. Not much, but better than nothing if you re a cyclist.

However, you re not allowed to receive the bicycle commuting fringe for any month that you receive any tax-free employer-provided transit passes, van pooling or parking allowances. Finally, you can t use a salary reduction arrangement to pay for bicycle commuting costs with pretax dollars.

The Bottom Line

These days, any way to save money is something to seriously consider. If your company pays for transportation fringes, that s great. Take advantage. If not, I hope you can at least sign up for a salary reduction deal that cuts your taxes.