Pretax limit on transit benefits drops for 2014
The maximum allowed pretax mass-transit benefit for employees fell from $245 per month in 2013 to $130 in 2014, beginning Jan. 1.
Employees can deduct commuting costs from their paychecks, tax free, through an employer benefit program up to the allowable monthly limit. Similarly, organizations that subsidize their employees’ commuting costs may do so up to the allowable limit, which results in lower payroll taxes than if they paid the money in wages.
A year earlier the American Taxpayer Relief Act temporarily raised the transit-benefit statutory limit to $245 per month. This new amount was not permanent and expired at the end of 2013.
By contrast, the monthly pretax parking benefit that employers can provide to drivers rose from $245 to $250 on Jan. 1, 2014.
“For employees who rely on or choose mass transit for their commutes, the decrease in the cap from $245 to $130 per month is the largest disparity we have ever seen between the transit and parking components of the pretax commuter benefit,” Natasha Rankin, executive director of the Employers Council on Flexible Compensation, told SHRM Online. “Our long-term goal is to encourage that any tax legislation establishes permanent parity between the parking and transit portions of the commuter benefit.”
“It’s a shame congress didn’t act on this before year end given the bipartisan support commuter benefits have received in recent years,” added Dan Neuburger, president of WageWorks Commuter Services, a benefits administrator. “Millions of middle class Americans and their employers will see a tax increase in January. People need to tell their congressional representatives that this must be addressed in early 2014 as it is difficult to administer this benefit retroactively.”
“If an employee had been getting the full cost of his or her transit expenses paid for by the employer up to the old $245 cap, and if the employer decides to decrease the maximum benefit to the tax-free maximum of $130, then it could mean a lot of money out of a worker’s pocket,” noted Stephen Crim, research director at Mobility Lab, a research-and-development initiative of Arlington County Commuter Services in Virginia.
“Of course, employers could elect to keep paying the full cost of an employee’s transit costs, even without the payroll-tax benefit, especially if Congress does what it did the last time this happened, and retroactively returns the benefit to $250 to match the maximum parking allowance,” Crim added. “Then again, we are living in an era when it would be naïve to rely on Congress to do something within a set time frame.”
Legislative fix proposed
In December 2013, Sen. Charles E. Schumer, D-N.Y., introduced a bill that would prevent the drop in transit benefits, but as of year end no action had been taken. “As the price of commuting continues to climb, this tax break has become increasingly vital,” Schumer said in a media release.
According to Schumer’s release, 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 more than $1,000 per year for commuters. Currently, 2.7 million U.S. commuters take advantage of the benefit.
Schumer said he plans to include the Commuter Benefits Equity Act in a broad tax package that’s expected to be considered within the next few months. The bill would create parity between the mass-transit and parking benefits, which would be pegged to the same rate going forward.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
© 2013, Society for Human Resource Management.
Have HR-related questions and concerns? Get access to essential forms, policies and guides, plus a live call center, at ToolkitHR.com, powered by HCN and the Society for Human Resource Management (SHRM).