The U.S. tax code this year favored people who drive to work, at the expense of those who take mass transit, but a bill being considered by the lame-duck Congress would change that law.
Today, an employer can withhold each month up to $250 in pre-tax dollars from an employee who drives to work so the employee can use those monies for their parking expenses. Yet that same employer can withhold each month no more than $130 in pre-tax dollars from an employee who takes mass transit to use those funds for their public transportation expenses.
“It makes absolutely no sense to provide those who drive to work with a tax break and make commuters who use mass transit pay more, and it must be a top priority before the end of this Congress to fix this inequality,” said U.S. Senator Charles Schumer at a Mineola press conference earlier this month.
A provision in the U.S. Senate’s Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act would require the Internal Revenue Service (IRS) to treat equally drivers and mass transit users.
If the EXPIRE Act becomes law, drivers and mass transit users could have up to $250 in pre-tax dollars withheld each month from their gross income in 2015, and those funds would be subject to neither federal nor state tax. These monies could then be converted into vouchers, which are then used to pay for either parking or mass transit. Many New York City employers have the non-profit TransitCenter administer their commuter benefits program. They disburse TransitChek Parking Cards to employees who drive to work and pay for parking using pre-tax dollars, and TransitCheks to employees who take mass transit to work and allocate pre-tax dollars for that purpose.
The EXPIRE Act passed the U.S. Senate’s Finance Committee this spring with bipartisan support. The legislation needs the approval of the U.S. Senate and U.S. House of Representatives, as well as the president’s signature by year-end 2014 to go into effect in 2015.
Mass transit parity is a relatively new concept. It was first incorporated into 2009’s federal American Recovery and Reinvestment Act. Before 2009, drivers were eligible to use up to $230 a month in pre-tax dollars for parking, whereas mass transit users could set aside no more than $120 a month in pre-tax dollars for their public transportation expenses. In the intervening years, Congress has wavered on whether the IRS should treat drivers and mass transit users equally.
The Capitol Hill deliberations come as the state’s Metropolitan Transportation Authority (MTA) weighs a 4 percent fare hike for Long Island Rail Road (LIRR) commuters, effective March 2015. To supplement its fare box revenue, the MTA since 2009 has received more than $1 billion annually from the state Legislature-approved MTA payroll tax, even though the tax was partially rescinded in 2011. But why would the MTA continue to need the economic crisis-induced tax, which also raised the price of rental cars and taxi cabs, as ridership grew?
Part of the answer to that question was on display this month as the MTA opened its Fulton Street Transit Center in lower Manhattan. The project exceeded the MTA’s initial budget by $650 million ($1.4 billion, rather than $750 million) and was originally to be completed in 2009, according to the Citizens Budget Commission. Before approving the MTA’s next Capital Plan, state lawmakers should retain a forensic accounting firm with no ties to the MTA to determine how the $1.4 billion was spent.