U.S. Senator Charles E. Schumer announced last week that the federal mass transit tax break that currently saves mass transit riders over $1,000 per year, in pre-tax commuting benefits will expire at the end of the year, if it is not renewed and made part of the permanent tax code. The commuter benefit currently covers up to $230 per month from a person’s gross income to pay for their mass transit commutes and provides parity with a previous benefit extended to drivers’ parking costs. The $230 monthly benefit is an increase from the $120 benefit that was in place until 2009.
Employees whose monthly mass transit fees are less than $230 can currently deduct the full amount of their commuting costs from their paychecks, tax free, through an employer benefit program. The cost is pegged to the IRS tax benefit that covers parking for drivers. Until 2009, commuters who drove to work received a greater tax break than those who took mass transit. In 2009 the mass transit benefit was almost doubled from $120 per month to $230 per month, creating a savings of over $1,000 per year for commuters. Currently, 500,000 commuters in the Greater New York Metropolitan Area, and 2.7 million commuters nationwide take advantage of the benefit. Schumer was able to have the benefit extended last year, but it is now set to expire on December 31, 2011. Schumer is pushing to make the transit benefit permanent and on par with the benefit extended to drivers.
“The last thing we should be doing in this economy is making it more expensive for New Yorkers to get to work,” said Schumer. “Increasing fares and decreasing incomes mean we need to help stretch every dollar earned by New Yorkers and that includes keeping programs that reduce commuting costs in place. We cannot afford to let this expire.”
Schumer authored legislation that passed as part of the economic stimulus package in 2008, allowing employers to offer their employees up to $230 per month in transit benefits tax free, equal to what they were offering tax-free for parking costs. The transit benefit reduces a commuter’s transportation costs by a third or more. If allowed to expire there would be a greater incentive for people to drive to work rather than take mass transit, as next year’s $240 pre-tax savings would only apply to those who drive. Schumer noted that the $240 per month benefit will fully cover the monthly cost of riding all major mass transit systems in New York City, including subway, bus, and express bus, and will cover most of Metro North and Long Island Railroad commuting costs.
The mass transit benefit now fully covers the typical monthly pass from the most common commuting areas. For example, the $223 cost of a monthly ticket from Garden City to Penn Station is fully covered by the benefit, but only 56 of the monthly cost would be covered if the benefit is not extended. Without an extension of the benefit, a commuter from Garden City loses $98 in pre-tax benefits a month, after taxes costing the commuter up to approximately $1,500 a year.
