The MT Position

By Daniel Neuburger

With so many transit operators across the country raising fares, American workers are increasingly facing the prospect of growing out-of-pocket expenses associated with getting to work.  Tax-free commuter benefit programs offer commuters a way to help ease this financial strain.

 

The American Recovery and Reinvestment Act (ARRA) passed in February 2009, included a provision to raise the monthly limit a commuter can deduct from their paycheck on a pretax basis from $120 to $230 to pay for their commute and accrue savings. The increase of the monthly limit brought the total potential savings for commuters enrolled in a commuter benefits program to around $1,100 annually. However, the additional savings related to the cap increase will disappear if the law is allowed to sunset on December 31, 2010, as it is now written.

 

A Quick Overview of Commuter Benefits

A commuter benefit program offered by an employer allows employees to deduct pretax dollars from their paycheck to go toward their commuting costs. The monthly limit is set by the IRS and is currently $230. The employee saves money when joining the program by having less of his or her paycheck taxed. Pretax dollars are provided to the employee on a monthly basis and used for one of many commuter benefit products such as debit cards, pre-purchased transit passes, transit vouchers, etc.  These convenient options ensure that the funds are used strictly for transit commuting, meeting IRS compliance. And the employer saves money as well thanks to reduced overall payroll taxes.

 

Based on the 2009 Commuter Impact Survey (CIS) conducted by TransitCenter Inc., of human resource benefit decision makers in New York, Chicago and San Francisco, more than one-third (35 percent) of all companies and nearly 60 percent of larger companies are now offering tax-free commuter benefits. The survey also revealed that nearly half (46 percent) of employers located in central business districts offer tax-free commuter benefits to their employees.  The survey also showed that commuter benefits continue to rise in terms of adoption and have become one of the “core four” benefits offered along with health, retirement and disability. This is likely due to the recognition by HR professionals that commuter benefits save money for employees and employers alike.

 

The Impact of the $230 Transit Cap

The CIS asked respondents, if the increase of the maximum amount allowed by the IRS for the transit portion of tax-free commuter benefits had any impact on their company. More than one quarter of employers said that enrollment in the program increased while 39 percent said employees who were already participating increased their pretax deductions.  Enrollment increased, especially for larger companies (37 percent) and companies located in New York (33 percent).

 

It also became clear that smaller businesses were excited about the new cap. One third of employees among these companies increased their deduction over the previous cap of $120 after the new law took effect.

 

When Fares Increase Commuter Benefits Help Cushion the Blow

The current economy is forcing transit agencies across the country to lay off employees, increase fares and/or reduce service. New York metropolitan area commuters are being hit with a second major fare increase in the past two years; the first in New York in 2009 and now in New Jersey, where commuters are seeing up to a 25 percent increase in their cost to get to work.

 

 When transit fares go up, we see increases in the number of companies and employees turning to commuter benefits to avoid the full impact of additional costs. When the cost of a monthly pass goes over $120, it’s thanks to the $230 transit cap limit that many more employees can reduce their commuting costs.

 

If Congress fails to act to extend the current $230 cap limit or make the cap permanent, it will revert to pre-stimulus levels of $120 per month.  For many of us, this will create a “double-whammy” of rising fares and lower commuter benefit savings.

Daniel Neuburger is President and CEO of TransitCenter, Inc., a nonprofit organization supporting mass transit ridership and a leading provider of tax-free commuter benefit programs, nationwide.

This entry was posted on Friday, May 14th, 2010 at 9:43 am and is filed under Transit Talk. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.