The District is one of a number of cities nationwide — but the only one in the Washington region– to require employers to provide the tax-free benefit. A similar law also goes into effect in New York on Jan. 1, and San Francisco has had one for several years.
D.C. transportation officials say they hope employees will take advantage of the program — and drive up the use of public transportation. Metro, meanwhile, is actively urging D.C. employers to be ready for the New Year’s Day deadline and is encouraging workers to ask for the transit benefit.
“Great news, DC workers! Commuter transit benefits are coming your way,” reads an ad that the transit agency is displaying in Metro railcars and buses. “Ask your boss for your commuter benefit.”
Some large companies already offer commuter programs allowing employees to have up to $130 a month deducted from their paychecks, before taxes, to pay for transit, as allowed by the IRS. Employees who commute by car and participate in the federally-supported benefits program are eligible for a maximum pre-tax deduction of $250 a month for parking fees.
The District’s ordinance only requires companies to offer the transit benefit, a strategy meant to encourage transit use over driving, and thus reduce congestion, wear-and-tear on roads and the carbon footprint. Alternatively to giving workers the $130 pre-tax payroll option, employers can offer a direct payment to cover employees’ transit costs or provide transportation like a vanpool service.
Workers should expect to receive one of the three options, though officials say employers are most likely to offer the pre-tax payroll deduction, which also maximizes an employee’s and employer’s tax savings.
“If transit costs are burdening right now this a way for them to reduce their cost of transit overall,” said Sam Zimbabwe, an associate director at the D.C. Department of Transportation. “We are trying to reduce the barriers that people have to taking transit.”
The proposal, which was part of the Sustainable DC Act of 2014, centered on transit benefits with a goal to increase transit ridership rather than supporting parking costs, said Zimbabwe. He said some employers will likely also offer parking benefits.
“But we didn’t feel that it was right to require them to do that,” he said.
Dan Neuburger, president of WageWorks commuter services, an employee benefits administrator, said measures like the ordinance are critical to making transit benefits available. Although the federal government supports the benefit, it’s only available when employers offer it.
Someone who uses the $130 maximum monthly transit benefit can save more than $600 over the course of the year, depending on the tax rate, Neuburger said. And, although employers incur administrative costs with the program, they save money by not having to pay the 7.65 percent payroll tax on the benefit amount that employees set aside pre-tax. Neuburger said an employee who takes the maximum benefit of $130 a month can save their employer about $120 a year.
“That’s a lot of money and it doesn’t cost anything for the employee to sign up for the program. So why would you not want to sign up…?” he said. “It is a great deal for everybody. It’s a win-win all around.”
Commuter benefits typically have been available to those working 9 to 5 office jobs that offer robust benefits packages. But this ordinance is expected to make it more widely available to workers with part-time jobs or who work in the service industry, said Grace Oran, with the District’s goDCgo program, which has been providing guidance to small and large businesses on how to comply come by Jan. 1.
In the mix, she said, are restaurants, gyms, retailers, and even large companies like Giant Food, that may not have considered offering the benefit before.
Commuter benefits are used by an estimated 2.7 million commuters, and transportation officials and agencies see them as a critical incentive to using transit. Metro, for example, has attributed a drop in ridership partially to last year’s cut in the federal tax benefit. The transit benefit dropped from $245 in 2013 to $130 last year while the parking benefit was set at $250. The transit agency and Wageworks, among other advocates, have urged Congress for parity in transit and parking benefits.