It's set to expire on 12/31/10 and there's little likelihood it will be extended:
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.
Tax-free commuter benefits can be structured as an employee-funded tax-free payroll deduction; as an employer-funded benefit; or the costs can be shared by employer and employee. The benefit can be delivered in the form of transit provider-specific passes, universally accepted vouchers and terminal-restricted debit cards, or through a reimbursement model under specific conditions defined by the IRS.
Previously, employers were allowed under Section 132(f) of the Internal Revenue Service (IRS) Code to let their employees use up to $120 per month of their pre-tax income to pay for their transit or vanpool commuting expenses and up to $230 per month for commuter parking. The new legislation amends the IRS Code to set the monthly tax-free contribution limit for transit/vanpool to a maximum of $230 per month.
The likely reduction - back to $120 from the $230 benefit in effect since Jan. 1, 2009 - is taking many federal workers by surprise and disappointing transit advocates, who say reducing the benefit will put more cars on the road in Washington, New York, Chicago and other congested urban areas. In the Washington area, riders had been insulated from Metro's historic fare increase this year with the higher subsidy.
The larger subsidy was long sought by transit groups as a way to create equal tax treatment of transit commuters and drivers, who for years had been able to use $230 a month in pre-tax dollars toward parking expenses. Now those groups are lobbying lawmakers on Capitol Hill to extend it. People with relatively expensive commutes - on rail and express bus, for example - have benefited the most from the increase.
But at a cost of about $192 million for two years, it was not permanent. And continuing it will be a hard sell on Capitol Hill, congressional aides say.
"The federal government was incentivizing more driving, and they finally leveled the playing field," said Stewart Schwartz of the Coalition for Smarter Growth, a Washington-area group that advocates for development near public transit. "It would be terrible to lose this."
I'm quite sure (because my wife told me) that many people who take advantage of this benefit are quite upset, since they've gotten acclimatized to it quickly and are having a hard time with the reduction of benefits basically in half. Of course, the same people have no problem demonizing the "stimulus" for its waste and fraud, but people are dumb so that's no surprise. For people who live farther out from their place of employment, this will make a big impact on their transportation choices, in most cases, turning them away from public transportation. In my office alone, I already know of one person who is going to eschew Metro for driving because of the reduction and I suspect others will soon follow suit.
I think that this provision was good economic stimulus and benefited all commuters, not just public transportation users. It's good stimulus because it puts more money in commuters' pockets (the less you spend getting into work, the more you can spend on other stuff). The increased benefit helped all commuters because it put more people in public transportation- and kept them out of cars. This, presumably, lessened the volume of car traffic. Now that this is expiring and transportation riders are re-evaluating the means by which they get to work, we're going to be looking at an increased number of cars on the road, slower commutes and overall worse externalities.
This is ultimately why some kind of congestion tax that funds public transportation works for everyone. Not all people will want to pay a tax to drive into work, so they'll seek other means of commuting. Since they'll be out of their cars, this will reduce the overall amount of traffic on the road. Thus, those who are willing to pay the tax are essentially buying a better driving experience. Wouldn't you be willing to pay a few bucks if it meant little to no traffic? And wouldn't you be willing to take public transportation if it had a farther reach, was reliable and cheaper than it is now? Or, of course, you could just get a bicycle. I recommend this one for a commute over 10 miles.