By Karl Vilacoba
Some great news for commuters seems to have been lost in the considerable fine print of the federal stimulus package. The law authorizes the IRS to raise the tax-free amount allowed by employer-sponsored commuter benefit programs from $120 to $230 per month, or $1,440 to $2,760 annually.
Under the new formula, set to take effect March 1, mass transit riders and vanpoolers can save nearly $800 per year in federal income taxes, and possibly more than $1,000 once state and Social Security taxes are factored in. Employees whose monthly mass transit fees are less than $230 will be allowed to deduct the full amount from their paychecks.
Over the last few years, the government raised the cap in intervals you could chalk up as “better than nothing.” The last three years saw three consecutive $5 hikes meant to adjust for inflation. In reality, the hikes often didn’t -- the surge in gas costs placed enormous pressure on transit providers to raise fares, in many cases well more than $5.
But by doubling the cap, the government has created a real incentive for commuters to leave their cars home. According to surveys by the nonprofit TransitCenter, one-third of employers who don’t currently offer the benefit said they would if the monthly cap were increased significantly, and 53 percent of employees said they would take advantage of the benefit if it were offered. Employers save money from these programs by lowering their payroll taxes.
Also significant, the law brings the pre-tax allowance in line with the $230 benefit provided for commuters who pay to park at or near their workplaces or at park-and-rides. Transit advocates objected to the previous $230 to $120 disparity, which they argued encouraged commuters to drive rather than ride the rails or bus.
“Given the economic pressures our riders are under, this relief couldn’t have come at a better time,” Steve Schlickman, executive director of the Chicago Regional Transportation Authority, said in a press release. “A thousand dollars a year can make a real difference in the life of a family. This is a victory for Chicago’s commuters.”