The last two weeks of December were indeed glorious for users of the transit portion of the federal commuter tax benefit. Congress, with last-minute passage of legislation to extend a number of expiring tax provisions for a one-year period, increased the pre-tax monthly deduction limit for mass transit commuters from $130 to $250 per month. The legislation was passed to restore parity between the transit and parking portions of the commuter benefit, which allows working families to save money by using pre-tax dollars to pay for their commute.
According to the Commuter Benefits Work for Us Coalition, at $250 per month the tax benefit can end up saving working families as much as $1,100 over the course of a year. Unfortunately, the legislation only covered 2014, so the higher monthly limit for transit commuters expired on January 1, causing the monthly limit to again plummet to the $130 level. While the legislation technically allows for the tax credit to be applied retroactively to the beginning of 2014, in reality, few commuters will benefit from this action.
To understand how we arrived at such an odd place, a little background is necessary. A provision in the watershed 2009 economic stimulus package elevated the monthly limit for the transit portion of the commuter benefit to the same level as the parking limit for the first time in its history. However, the provision was only temporary, and parity was set to expire at the end of 2011, until Congress enacted legislation to extend it for another year. Parity between the transit and parking benefits remained in place until the end of 2012, when Congress adjourned without enacting another extension. This meant a reduction in the transit benefit back to its original level (which had increased to $120 per month due to cost of living increases), while the parking benefit, a permanent part of the tax code, had increased to $240 per month. In January of 2014, Congress enacted legislation to restore parity retroactively for 2013, and as noted took the same action in December for 2014.
This roller coaster ride for the transit benefit has created a lot of confusion for commuters and employers. It is all but impossible to apply transit commuter benefits retroactively. Unlike most expiring tax provisions, the commuter tax benefit is not something that is easily claimed on an annual tax return. Employee deductions are taken in advance of the purchase of transit passes that are used at a future date. In addition, most commuters only opt to deduct the maximum amount allowed under the law at the time of the deduction. For example, even if my monthly transit commute costs $250, in 2014 I would only deduct $130 from my paycheck to pay for my commute pre-tax, because that is the pre-tax maximum allowable under law.
The administrative problems caused by the confusing transit commuter tax benefit scenario, along with the fundamental unfairness of the U.S. government providing a greater incentive for people to drive to work, have not gone unnoticed. For the past several years third-party benefits providers such as Edenred and Wageworks, in cooperation with transit advocacy groups such as the American Public Transportation Association, have advocated for permanent parity between the transit and parking portions of the transit benefit. More than 100,000 letters have been sent to Congress by disgruntled commuters through the Commuter Benefits Work for Us coalition website. With the support of transit champions such as Sen. Charles Schumer (D-NY), Earl Blumenauer (D-OR), James McGovern (D-MA), Michael Grimm (R-NY) and Peter King (R-NY), this movement has been slowly gaining momentum on Capitol Hill.
In December, these efforts came extremely close to paying off. In an early version of the tax extenders bill, Senate and House leaders agreed to make a number of tax extenders permanent. As part of this package, negotiators from the Senate Finance Committee (led by Democrats) and the House Ways & Means Committee (led by Republicans) agreed to include a provision to create permanent parity between the transit and commuter portions of the commuter benefit at $250 per month. Unfortunately, this version was scuttled due to objections over unrelated provisions, and an eventual veto threat by President Obama. The result was that Congress was forced to enact the one-year retroactive fix instead.
Despite coming tantalizingly close to exiting the roller coaster and achieving permanent parity in the 113th Congress, there is still reason for optimism. The new Congressional leadership for the 114th Congress has set continuing tax reform as a priority, meaning there should be further opportunities to enact the same legislation. Furthermore, the demonstration of bipartisan cooperation on this issue is encouraging. The fact remains that this issue enjoys wide support from Democrats, significant support on the Republican side, and virtually no opposition. In addition, despite the fact the one-year extension provided little actual financial assistance for commuters, it was important that the measure remained part of the extenders package last year, as that measure will serve as the basis for new legislation this year. The major question in the coming year is will the now all-Republican-held Congress be able to work with the President to enact meaningful tax reform, and will the bi-partisan support for the permanent parity provision carry over into the new package. Here’s to hoping for success and finally an end to the wild ride for the transit commuter benefit.
Paul J. Dean is the Director of Dean & Dean Consulting, LLC, and is a government affairs consultant specializing in public transportation issues. He is a former Director of Government Affairs of the American Public Transportation Association and Mass Transit Magazine Top 40 Under 40.
