Commuting is never tax deductible.
If your employer is giving you a taxable stipend for commuting, that can continue as long as they agree and you can use the money for anything you want. Basically, they are giving you a taxable raise or bonus to help with your expenses. You pay the tax and use the money for anything you want. There is no time limit on how long your employer can give you a taxable raise or bonus, it just depends on how valuable you are.
If your employer is giving you a non-taxable stipend, they are already breaking the law. I'll try to break this down into parts...
- Some definitions: "transportation" is local transportation including to and from your job. "travel" is when you need to travel away from your tax home -- where you do most of your work -- defined as the broad geographic or metro area.
- Under the law before the 2018 tax cut and jobs act, you could deduct work-related travel as an itemized deduction subject to the 2% rule. Work-Related travel means travel away from your tax home, far enough that you need to stay overnight, for an assignment that is temporary--meaning expected to last and actually does last, less than one year.
- Your tax home is where you do most of your work and earn most of your money. If you live in Richmond VA and commute to Washington DC every day, your tax home is Washington DC. You could deduct travel to a conference in New York or a temporary assignment in Baltimore, but you can't deduct your commute. That's just how you choose to live. (You also can't call a work trip from Richmond to Petersburg as "travel" -- they're just too close.)
- Although the TCJA eliminated the itemized deduction for work-related travel on your personal tax return, employers can still reimburse employees tax-free for work-related travel, using the same definition of "travel". (Away from tax home, temporary.) And the employer can deduct the expense on their tax return as a business expense. (This is only allowed with an accountable plan, where the employee proves their expenses with receipts.)
- Your living arrangements are not travel. The employer can give you certain tax-free commuting benefits only as specified in law. They can give you a pre-paid transit card if you need to take the subway or bus to work, for example. But hotels and man-caves because you don't want to make a 2.5 hour commute is not included in the allowable fringe benefit for commuting expenses.
- Therefore, the employer can reimburse you for commuting expenses if they want to, but they must treat it as part of your taxable compensation. They can't reimburse you tax-free for commuting, because it is not a legitimate work-related expense for you or for them.
I go into this detail because you mention the employer said something about a time limit. So I suspect that they are getting the "travel" and "transportation" rules mixed up.
So bottom line for you and the employer:
If they give you a commuting stipend and make it part of your taxable wages, they can pay it as long as they want and you can spend it however you want. If they give you a non-taxable stipend, they are in non-compliance, and you are too, technically. (If you were audited, you would owe income tax on the stipend, although they might be generous and not assess a penalty if they accept it wasn't your fault.)
