Update: On Jan. 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (H.R. 8), preventing the U.S. from going over the impending “fiscal cliff.” The legislation extends through 2013 the increase in the monthly tax exclusion for transit and vanpool benefits. This provision restores the parity of the benefit to fund on a pre-tax basis public transportation and vanpool expenses, up to the same limit as commuter parking expenses—$240 per month. On Jan. 1, 2012, the amount that could be set aside to cover parking costs as part of a commute to work increased from $230 to $240 per month due to a cost of living adjustment. At the same time, benefits for public transportation commuters were reduced to $125 per month.
Employers generally can exclude the value of transportation benefits from the employee’s wages up to the IRS limits. As employees save money, so do employers through reduced payroll taxes that can offset the cost to implement a benefits program. Alternatively, employers can offer subsidized commuter benefits as an employee benefit. See "'Fiscal Cliff' Bill Affects Payroll Tax Withholding and Employee Benefits."
On March 29, 2012, the U.S. House of Representatives failed to approve a multiyear Surface Transportation Reauthorization bill that would reverse cuts to pretax transit accounts, an employee benefit that promotes the use of public transportation and vanpools. Legislation approved in the Senate on March 14, 2012, would have restored the maximum pretax monthly contribution for mass transit commuters from $125 to $240 per month—the amount allowable for commuters to cover parking expenses.
While benefits for mass transit commuters were reduced from $230 to $125 per month at the beginning of 2012, the cap for parking costs was increased from $230 to $240 per month. The failure to restore parity between parking and mass transit benefits in effect reduces the allowable contribution for mass transit commuters by $690 over the first six months of 2012—a reduction that could cost individual commuters as much as $270 in 2012.
“Congress has left many commuters one stop short of their destination,” said Dan Neuburger, president of WageWorks Commuter Benefit Services and member of the CommuterBenefitsWorkForUs.com coalition. “The House failed to give commuters the break they need and deserve. While the Senate did its part, the House has kicked the can down the road, forcing many middle-class Americans to forego another three months of tax savings.
“Millions of Americans rely on pretax commuter benefits to manage and hold down the costs of an increasingly expensive commute to work,” Neuburger added. “With gas prices on the rise, commuters using mass transit to get to work need a break, not a penalty.”
“There’s no reason for Congress to grant preferential treatment for individuals driving to work over those taking public transportation,” concurred Gerard Bridi, president of Edenred USA, a national provider of commuter benefits. “With gas prices soaring and more people turning to public transit, Congress should encourage commuters to use public transportation, not penalize them.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Higher Tax Break for Transit Benefits Expired at End of 2011, SHRM Online Benefits Discipline, January 2012
Transit Commuters Face Higher Costs While Congress Dithers Over Tax Break Extension, Forbes, March 2012
Employers Take Note: Commuting by Public Transit on the Rise, Thompson Media Group, March 2012
SHRM Online Benefits Discipline