The stimulus bill signed into law this week includes significant tax savings of up to $1,000 per year for workers who commute by mass transit.

The law raises the amount of pretax income that workers enrolled in employer-sponsored commuter benefits programs can use to pay for mass transit, from $120 per month to $230 per month.

TransitCenter, a nonprofit mass transit advocacy organization, has been asking Congress to pass such a bill for seven years. The organization introduced the TransitChek commuter benefits program in 1987.

“This law nearly doubles the savings employees can enjoy by using mass transit and sets us on a path to a future that’s both economically and environmentally sustainable,” TransitCenter president and CEO Larry Filler said in a statement.

The cap increase is expected to boost both employee and employer savings. Employees can now save up to $1,000 a year or more on their transit commute, representing a potential $440 a year increase in what they can save if their commuting expenses exceed the current monthly cap of $120 per month.

Employers offering the benefit can save up to an additional $100 per employee per year in payroll taxes. Commuters and their employers in the New York City metropolitan area alone are expected to save an additional estimated $37.5 million, and $16.4 million in payroll taxes, a year, respectively.

The commuter benefit allows employees to deduct up to $230 per month from their gross income to pay for their mass transit commutes. Employees whose monthly mass transit fees are less than the $230 cap are allowed to deduct the full amount from their paychecks. The measure helps employers save money by lowering their payroll taxes. Additionally, employees are allowed to deduct up to $230 per month for eligible commuter parking expenses.

Besides providing relief to commuters who already use the benefit, the legislation is expected to increase the number of employees who are offered the benefit as a result of the increase in employee and employer savings under the new law. Recent TransitCenter surveys indicate that as many as one-third of employers not currently offering the benefit would do so if the monthly transit benefit were increased significantly, as it now has been. Further, 53 percent of employees would take advantage of the benefit if it were offered to them. 

The new provision is also expected to be helpful to commuters looking to offset fare hikes put into effect by mass transit operators struggling to address recent budget shortfalls. 

“Given the economic pressures our riders are under, this relief couldn’t have come at a better time,” said Regional Transportation Authority of Chicago executive director Steve Schlickman.

The benefit took effect immediately when the president signed the bill. However, the benefit is not automatic. To take advantage of it, employees have to ask their employers to sign up for the program, which is known as Tax-Free Commuter Benefits. If companies already participate in the program, they need to raise their current limits.

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