Commuter Transit Benefits Go Back Up

7 Train

So the “Fiscal Cliff” turned out to be bittersweet. On one hand, payroll taxes have gone back up after a brief respite, but, according to WageWorks, the commuter pre-tax deduction has been restored under the American Taxpayer Relief Act of 2012 .

From an email from WageWorks that was sent to me:

We have some good news to share with you. The recently enacted American Taxpayer Relief Act of 2012 includes a provision that, when combined with a recently approved inflation adjustment, increases the monthly pretax transit limit to $245 for 2013.

This is good news indeed. We haven’t seen this kind of parity with parking deductions since the end of 2011, when Congress let the federal pre-tax mass transit benefit expire, which led to the benefit being cut in half for 2012. And as you all know, HR had to communicate this message in the best light possible, even though some of us (myself included) thought it unfair and incredibly un-green, as not only was the mass transit benefit cut, the parking benefit was increased.

As of Jan. 1, 2012, U.S. commuters are seeing their monthly income and FICA tax exclusion for transit passes shrink from $230 to $125 because Congress failed to extend the temporary higher tax exclusion limit, which expired at the end of 2011.

However, also beginning Jan 1, 2012, the tax-free parking benefit has increased from $230 to $240 per month, according to the Internal Revenue Services’ 2012 Employer’s Tax Guide to Fringe Benefits. The IRS adjusts these benefits annually from the statutory limit to keep pace with inflation.

This came as a hard blow to the great many people who take public transportation (specifics here) to work. And, as referenced, challenging to communicate to employees. From a November 2011 Forbes article by Ashlea Ebeling:

Employers have started breaking the bad news of the upcoming transit benefit cut to employees during open enrollment season—that’s when employees sign up for health and retirement and other benefits. The commuter benefit isn’t tied to open enrollment—you can sign up any time during the year—but most HR departments pitch it during open enrollment.

“We have employees who commute from far away and the reduction of the transit benefit limit will certainly affect them,” laments Avi Smith, benefits manager at B&H Photo in New York City, who says he’s alerted employees to the tax break cut. “From an environmental perspective I would have figured that the government would want to structure the monthly limits to promote the use of mass transit,” he adds.

But now this is all in the past. A new day is dawning. Commuters in America rejoice! The Federal Government has come through. And it’s all retroactive through 2012.

Now about the paperwork

How to calculate the retroactive 2012 benefits and get them in commuters’ pockets will be one big administrative problem. “We’ll have to seek guidance, especially since it’s after the first of the year,” says Jody Dietel, chief compliance officer with WageWorks, a benefits provider. There could be payroll adjustments, or there could be an adjustment on your 1040 federal income tax return.

Better get to it.

[Photo by Scott Beale]