January 5, 2012

Public transit riders to see hefty tax boost this year

Due to Congressional inaction during last month’s tax deliberations, the new year ushered in a tax increase to public transit riders. Currently, commuters who use public transit, commuter buses and van pools may see their annual commuting costs increase by more than $550 based on a bias in the tax code that benefits driving over taking public transit. In addition, the failure to extend the benefit has resulted in a tax liability increase for companies offering the benefit.

Congress failed to pass the extension of the $230 level for the monthly transit commuter benefit before the Dec. 31, 2011 deadline. The transit benefit has now dropped to $125 per month per person while the parking benefit has increased to $240 per month.

“This drop in benefits will cause a dramatic increase in commuting costs for public transit riders,” said APTA President Michael Melaniphy. “At a time when Congress and the Administration have resisted revisiting gasoline taxes (user fees) to support much needed investments in our nation's transportation infrastructure, it is ironic that they are willing to effectively raise taxes on public transit users.

“Reducing the benefits for public transit riders at the same time that tax benefits are increased for auto usage is a significant divergence from this country's balanced approach to transportation,” added Melaniphy.

APTA officials say public transit riders should tell Congress to support the commuter transit benefit as they resume negotiations to finalize the middle class payroll tax cut before it expires at the end of February. In addition, for the long-term, riders should encourage Congress to support Rep. Jim McGovern’s (D-MA) legislation in the U.S. House of Representatives and U.S. Sen. Charles E. Schumer’s (D-NY) legislation on the Senate side to permanently extend parity for this benefit. To contact your representative http://capwiz.com/napta/home/

The following is an example of how this drop in benefits actually serves as a tax increase to public transit riders. A company with employees in the 28% tax bracket, with a state tax rate at 5% and FICA and Medicare at 7.65%, a $115 reduction taxed at 40.65% amounts to a $561 annual income tax increase for the individual commuter.

The other side of the equation is how it affects an employer’s tax liabilities. Employers will also see their tax liability increase if they are offering this program in their pre-tax benefits plan. Under the same scenario, a company that offers the benefit to 100 employeess will see its tax liability increase by $10,098. This is based on $1,320 per employee in reduced pre-tax withholdings annually taxed for FICA and Medicare at 7.65%.

“We will continue to seek to maintain parity between transit tax benefits and parking tax benefits to ensure that there is not a disincentive for taking public transit. It is sound policy to maintain both the transit and parking benefits at equal levels,” concluded Melaniphy. 

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