The good news is that, for most commuters, the recent tax reform won’t affect the benefits they can get based on the way they get to work. The bad news is that reform-related changes will affect some commuters—and could signal a trend that will affect us all.
Tax reform made changes to the Qualified Transportation Fringe Benefit, as it is called, which emerged in the mid-1990s to encourage forms of commuting that reduce pollution and road congestion. The benefit allowed businesses to take a deduction for covering employees’ public transit fares (including bus fares and vanpool costs) and allowed employees to maintain pre-tax spending accounts for public transit costs and parking. The result has been more commuters choosing to get to work in ways other than driving alone … and that has meant less pollution and less traffic.
As the Trump Administration’s Tax Cuts and Jobs Act built up steam last year, transit advocates feared the worst, as these incentives appeared to be in the crosshairs. When the final tax reform measures were announced, we learned that one major incentive was, indeed, eliminated: an employer’s ability to take tax deductions for subsidizing parking and transit costs. The act also ended an employer’s ability to provide bike-to-work commuters up to $20 per month in commuting expenses.
Fortunately, since most commuter benefits are offered in the form of pre-tax perks (not subsidies), and those pre-tax perks were not affected by the latest reform, most employees can continue to enjoy outcomes such as reduced payroll taxes and increased take-home pay.
Still, concerns remain. Many agencies (including us) believe these reductions in transit incentives signal a reduced national commitment to improved transit and alternative transportation. We fear this “chipping away” at commuter benefits signals that our national transportation policy is moving away from increased transportation options.
We find this apparent shift baffling in light of increasing private support for such benefits. Here in central Indiana, where the Central Indiana Regional Transportation Authority works, we see a number of businesses offering transit benefits, and others showing an interest in them. As a result, we are working to reassure employers that transit-related tax benefits for employees are still in place and to let them know how they can still take advantage of them.
Employers have two tools at their disposal.
First, employers can continue to subsidize parking and transit costs. True, they will no longer receive tax deductions for doing so, but they can still offer this subsidy as a non-taxable employee benefit. In other words, while the financial benefit to the employer was eliminated, the positive impact from offering a tax-free subsidy to workers remains.
Second, employers can create commuter flexible spending accounts for their employees. By allowing employees to have the costs of transit passes or vanpool fares deducted from their pay on a pre-tax basis, these accounts work similarly to the way pre-tax health spending accounts do. It’s estimated that these accounts can save an employee up to 30 percent on monthly commuting costs.
Everyone wins with these benefits: Employees get tax breaks for doing things that benefit them anyway. And the community gets cleaner air and fewer cars clogging up roads. We hope the chipping away at these benefits is merely a bump in the road on the way to a better transportation system.•
Kaplan is executive director of the Central Indiana Regional Transportation Authority.