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Do you commute to work? The pre-tax benefit for transit commuters is set to drop nearly in half on Jan. 1, costing transit riders $500 and up a year in lost tax savings. On behalf of the more than 2.7 million families who take advantage of the transit portion of commuter benefits, a consortium of players including benefit providers like TransitCenter and WageWorks are rallying to preserve the higher limits. Their handiwork is at the Web site, Commuter Benefits Work For Us, where transit riders can click through to tell Congress they want transit benefits to continue to equal parking benefits after the New Year.
Through 2011, assuming your employer offers a plan, you can put away $230 a month pretax salary to use for transit (bus, rail, trolley, subway or ferry), and you can put away $230 a month pretax salary to use for parking. On Jan. 1, 2012, the $230 a month limit goes up to $240 a month for parking. But the limit for transit will drop to just $125 a month starting on Jan. 1, 2012 (the old $120 transit limit indexed for inflation), unless Congress acts. That’s because the $230 transit riders tax break was one of the temporary 2009 stimulus tax breaks, extended for a third year last December. How much of a difference does the equalized limit make? If you’re in the 40% combined federal and state tax bracket and can select $230 a month in pre-tax transit benefits, instead of just $125 a month, you save $504 a year.
Employers have started breaking the bad news of the upcoming transit benefit cut to employees during open enrollment season—that’s when employees sign up for health and retirement and other benefits. The commuter benefit isn’t tied to open enrollment—you can sign up any time during the year—but most HR departments pitch it during open enrollment.
“We have employees who commute from far away and the reduction of the transit benefit limit will certainly affect them,” laments Avi Smith, benefits manager at B&H Photo in New York City, who says he’s alerted employees to the tax break cut. “From an environmental perspective I would have figured that the government would want to structure the monthly limits to promote the use of mass transit,” he adds.
At least some members of Congress are listening. Yesterday, Rep. James McGovern (D-Mass.) sent out a “Dear Colleagues” letter, calling for more co-sponsors on the bill he introduced in July, the Commuter Benefits Equity Act of 2011, to make parity between transit and parking benefits permanent. (There are 47 co-sponsors, including the 23 original signers). At a press conference at New York City’s Grand Central Terminal earlier this month, Sen. Charles Schumer (D-N.Y.) introduced a companion bill.
Separately, in May, Rep. Earl Blumenauer (D-Ore.) introduced the Commuter Relief Act that would reset the commuter benefit at $200 a month for transit and/or parking and make other policy changes, including a change that would help bicycle commuters. Dropping the parking benefit to $200 would have huge revenue implications, and essentially could pay for parity. Under Blumenauer’s bill, bicycle commuters could claim the transit/parking benefit in addition to a separate $20 a month nontaxable fringe benefit he championed that’s available for commuting by bicycle. (For example, individuals could use the $20 bike benefit and still collect up to $180 a month if they ride their bike to catch the train; for now the law forces bicycle commuters to choose between the two benefits). The League of American bicyclists has answers to frequently asked questions about the bicycle benefit here.
The commuter benefit helps cut taxes for employers too. In 2010, employers nationwide saved about $300 million in payroll taxes, money that could be reinvested to create jobs, according to TransitCenter, which runs the TransitChek reimbursement program. (Employers don't pay payroll taxes on pre-tax deductions made by employees). Take away the enhanced transit benefit and it’s like a tax hike on employers as well as a tax hike on commuters.
A permanent solution this year is unlikely. The best hope for commuters is that Congress will include at least another one-year extension of the transit parity provision along with other so-called “extenders”--tax laws that are on one-year life support expiring on Dec. 31, such as the state and local sales deduction and the higher education tuition deduction. In context of the extenders’ battle maybe there isn’t room for substantive policy discussion, so bicyclists might be out of luck.
If there’s no last minute fix this year like last year, the transit limit automatically drops Jan. 1. Congress could tack transit parity onto a tax bill next year, but it’s unlikely that it would be retroactive as that would be difficult for employers to handle the bookkeeping. In the meantime, even at the lower limits, you save by signing up.
