Tax benefits for mass transit commuters set to drop
By Jia Lynn Yang and T. Rees Shapiro,
To the many items that Congress neglected to address before wrapping up its year, add another: tax benefits for millions of Americans who rely on mass transit for their commutes.
Starting Jan. 1, the monthly amount that commuters can set aside before taxes to spend on mass transit is to drop from $245 to $130, which for some heavy users could mean several hundred in higher costs next year.
The change pits mass transit users against drivers, who by contrast will see an increase in their monthly parking benefit in the new year, from $245 to $250.
“This is the biggest disparity between the two components of the commuter benefit that we have ever seen,” said Natasha Rankin, executive director of the Employers Council on Flexible Compensation. “For those who rely on mass transit, where you also have increasing costs, this is a double hit.”
The lower benefit has ramifications for commuters across the country, but particularly in the Washington metro area, where between 400,000 and 500,000 people take advantage of the tax benefit, according to WageWorks, which helps companies administer benefits.
Tom Curtis, who rides Metro every day from his home in Arlington to his job at the American Water Works Association in the District, is among those who will lose because of the inaction on Capitol Hill.
He said he couldn’t understand why Congress allowed drivers to keep their benefits. “They ought to be encouraging people to use more efficient and environmentally friendly mass transit like Metro,” said Curtis, 66. “The highways are too congested and overused.”
Curtis said that for many commuters, the change in benefits will amount to a significant amount of money.
“It could be a real hit,” he said.
Advocates say the benefit enjoys broad, bipartisan support. But it’s attached to a larger bill filled with seemingly random tax benefits that have already expired or are set to be phased out at the end of the year. These “extenders” include everything from research and development tax credits to breaks for domestic TV and movie production.
With lawmakers saying they’ll pick up the extenders bill sometime in the first quarter of next year, advocates and industry observers say it could take months for transit users to see their benefits restored to their current level.
“Unfortunately, many people will lose not only the January, February and March tax break but probably into April, too,” said Dan Neuburger, president of commuter services at WageWorks. He added that even if Congress addresses this by March, as hoped, it will take weeks to administer the benefits. That means most commuters may not see the higher tax break until later in the spring.
Local commuters, many of whom spend substantial amounts traveling long distances to their jobs, are often sensitive to any decrease in the cap on pretax spending. Metro officials say that in 2012, when the system instituted higher fares and the transit tax benefit dropped to $125 a month, ridership fell 2.7 percent, or 9.5 million.
This isn’t the first time the size of the transit tax benefit has hung in the balance at the 11th hour. A year ago, it squeaked by in a bill that resolved the standoff over the “fiscal cliff.”
This year, Congress again delayed passing the extenders bill — including the benefits for transit users. That happened largely because lawmakers were trying to gin up support for broader tax reform, with some on Capitol Hill insisting the extenders should be handled along with the rest of the tax system, not separately.
But with one of the leaders of that effort, Senate Finance Committee Chairman Max Baucus (D-Mont.), on his way out to potentially become the next U.S. ambassador to China, the timetable for the extenders has accelerated to sometime in the first three months of 2014.
Employers, who must elect to participate in the commuter program for their workers to benefit, also stand to lose money. That’s because if employees are unable to deduct as much from their paychecks as before, their employers have to pay more in payroll taxes.
The tax benefit for commuters has been in place since 1998. From the beginning, those who used mass transit saw lower benefits than those who drove and parked. Regular cost-of-living adjustments only widened the gap until 2009, when the economic stimulus package brought the transit benefit temporarily in line with the one for drivers.
In 2012, however, that parity lapsed, and the transit cap fell to $125 a month. On Jan. 1, 2013, in its resolution to stave off the fiscal cliff, Congress brought the amount back up to $245 and retroactively tried to patch up the savings that were lost the previous year.
Advocates of the tax break say that calculating those retroactive savings — a situation Congress will once again face if restores the bigger commuter tax break next year — can be very difficult.
“It’s a huge administrative burden to then go figure out retroactively what someone’s commute would’ve cost,” said Neuburger of WageWorks. “So companies just didn’t want to do it. They lost the tax savings, and the employees lost the tax savings.”
Now, without a rule ensuring that transit users see the same level of benefits as drivers, the gap between the two is set to grow again. Advocates say the best solution is to make the level of savings given to transit users the same as drivers — permanently.
Last week, Sen. Charles E. Schumer (D-N.Y.) made an attempt to pass a bill that would avert the drop in transit benefits. The effort failed.
Chris Monk said he relies heavily on the tax credit for the commute from his home in Leesburg to his government job in Southeast Washington. He said the reduction in the tax break probably means he’ll give up on mass transit most days.
“I’m grateful to get any mass transit benefit at all, but the truth is I’m still disappointed,” said Monk, who started taking advantage of the tax benefit about a year ago. “This change is going to make it easier for me to shrug and drive some days.”
Dina ElBoghdady contributed to this report.