It Pays to Ride Transit

By

March 25, 2009

The American Recovery and Reinvestment Act recently signed by President Barack Obama nearly doubles the transit benefit allowance used to pay for transit passes.

The benefit works one of three ways:

• Employers give their workers up to $230 for transit as a tax-free benefit.
• Employers give employees the option to use payroll deductions to avoid paying taxes on up to $230 a month in commuting costs.
• Employers and employees split the costs of the benefits

The previous maximum allowance was $115.

Employees do not pay federal income or payroll taxes on transit commuter benefits, except on the amount, if any, in excess of $230 per month. A local adult SamTrans monthly pass sells for $56, and an express pass – valid on any route – costs $144. Caltrain offers a variety of tickets, with the most expensive monthly pass costing $298.25.

The transit commuter benefits are treated much like other commonly available fringe benefits, such as employer-provided health insurance and vision care. Employers can deduct their costs for providing such benefits and they avoid payroll taxes on such benefits, regardless of who pays.

Transit commuter benefits provide significant benefits for employers as well as employees. The employer’s cost of providing benefits can be deducted as a normal business expense. Employers don’t have to pay their share of federal payroll taxes on transit commuter benefits. This payroll tax savings is usually more than enough to cover any cost of administering the program.

The law is designed to encourage the use of public transit, which provides many benefits to customers and the community, such as reduced congestion, decreased auto emissions and reliance on foreign oil and increased quality of life. Riding transit also is generally less expensive than maintaining and operating a car, allowing commuters to keep more of their hard-earned money. The American Public Transportation Association estimates that public transit customers save $8,500 a year.

Every year, public transportation saves 4.2 billion gallons of gasoline and reduces our nation’s carbon emissions by 37 million metric tons, according to APTA. Public transportation is part of the solution for the country’s national goals of energy independence and carbon emissions reduction.

Ridership on SamTrans and Caltrain continues to increase as commuters and fun-seekers discover the convenience and bargain. During the last fiscal year, SamTrans carried more than 15 million customers and nearly 12 million people rode Caltrain.