Commuter Benefit Set to Expire on January 1, 2011

14 Dec

Public transit riders could see increased commuting costs on January 1st if Congress does not act in the lame duck session to extend a transit benefit.

The American  Recovery and Reinvestment Act of 2009 established parity between parking and transit/vanpool benefits at $230 per month that an employer can offer to its employees on a tax-free basis — either by a direct subsidy or by allowing workers to purchase passes using pre-tax dollars. However, the transit/vanpool portion of the benefit will revert back to the previous amount of $120 per month if Congress allows the provision to sunset at the end of the year while the parking benefit remains at $230.

For a worker using the entire $230 per month tax-free transit/vanpool allotment who is in the 25% federal income tax bracket and who pays 6% state income tax plus 7.65% in Social Security and Medicare taxes, the additional pre-tax benefit of $110 per month for transit or vanpool fares results in a net tax break of $510 per year (38.65% of $1,320 annually). The $230 monthly cap helps about 850,000 employees across the nation who use that benefit. The proposed reduction in that cap would increase commuting expenses for those workers by an average of 18%, according to a recent analysis by the management consulting firm Bennett Midland. That analysis shows that the reduction of the monthly cap to previous levels could drive down mass-transit ridership nationwide by 5% to 9% among users of commuter benefits.

The impending reduction would be especially hard-hitting in major metropolitan areas where the largest transit markets exist. In the New York City metropolitan area, for example, the minimum monthly pass for each of that region’s three commuter-rail systems exceeds $120.

If you want to help, please contact your representatives in the House and Senate encouraging their support for the Commuter Benefit Equity Act, which would make permanent a temporary increase in the value of the transit tax-free benefit for commuting.

 

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