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Tax-Free Commuter Benefits on the Rise

October 16, 2009

More employers are allowing employees to set aside money tax-free from their paychecks to help defray their commuting costs after the limit was lifted by the stimulus bill.

That’s good news for commuters, particularly within large metropolitan areas, and it could be a help for the environment and cities that regularly deal with traffic jams.

A new study from TransitCenter, a nonprofit organization that advocates greater use of mass transit, found that eight months after the American Recovery and Reinvestment Act increased the amount of tax-free income that employees could use to pay for their mass transit fares from $120 to $230 per month, 35 percent of companies surveyed offer a tax-free commuter benefit. Almost half of companies located within central business districts now offer the benefit to employees, said the group.

TransitCenter reported a 35 percent increase in the number of new employers who have joined its TransitChek program during the eight months following the bill’s passage, compared to the same period the prior year. Forty-six percent of the companies surveyed within central business districts offer tax-free commuter benefits to employees, compared to 19 percent of those located outside of them. These companies also reported higher levels of employee participation in the program. Twenty-nine percent report that half their employees participate, versus just 9 percent for companies outside the CBDs.

As a result of the increase in the transit benefit cap in Section 132(f) of the Tax Code, 27 percent of companies have seen increased enrollments, 39 percent have seen an increase in their employees’ pretax deductions, and 7 percent of companies have increase the subsidized amount offered to employees.

Our company, SourceMedia, is one of those allowing employees to have money taken out of their paychecks to pay for monthly commuting costs. The eTRAC Commute program from Benefit Resource Inc. is the one we use here, although our predecessor company used to offer the TransitChek years ago.

They can both be useful benefits and save money on expensive commuting costs. Unfortunately, the Metropolitan Transportation Authority here in New York has seen fit in recent years to steadily raise the cost of subway and bus trips, while tolls have also gone up for drivers. Any bit of relief from tax-free benefits soon gets swallowed up by transit fare hikes. It’s no surprise, then, that more people are signing up for the benefit and that the amount they need to have taken out of their paychecks to cover the cost of commuting has needed to go up as well.

What's really needed is for the cost of mass transit to be subsidized more by state and city governments. But given the budget crunch faced these days by most states and large cities, that's not likely to happen anytime soon.

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