Parking and Transit Benefits Tax Exclusion Parity Expires Again; Congress Should Consider Permanent Fix

January 06, 2014

Commuters may exclude from federal income tax a certain amount of their transportation expenses. For calendar year 2013, up to $245 per month in qualified parking expenses, up to $245 per month in transit benefits, and up to $20 per month in bicycle commuting expenses was excludable from tax under this “qualified transportation fringe” provision.[1] An employee may take any or all of the amounts, which employers then withhold from his or her paycheck.

Equal treatment of parking and transit commuting expenses was a temporary provision that expired at the end of 2013 after Congress failed to renew it. Prior to 2009, the monthly parking cap was roughly twice the monthly transit pass cap, with both growing as the amounts were annually adjusted for inflation (see Table 1). The 2009 stimulus bill equalized tax treatment of parking and transit commuting expenses at $230 per month each, temporarily, for the period March 1, 2009 to December 31, 2010.[2] (The $20 per month bicycle commuting expense reimbursement provision was added for 2009 as part of a 2008 bill.) Congress subsequently extended the parity through the end of 2011, when it finally expired. Throughout 2012, therefore, commuters could exempt $240 in parking benefits per month, but only $125 in transit benefits per month. A 2013 bill restored parity retroactively for 2012 and temporarily through the end of 2013.[3] In August 2013, the IRS provided guidance on how taxpayers could obtain a refund of taxes for transit benefits they took above the cap.[4]

Because Congress failed to renew the temporary provision, it expired again at the end of 2013 and the transit reimbursement fell to roughly half the parking exclusion on January 1, 2014. A permanent provision would reduce federal income tax and payroll tax revenue by approximately $160 million per year.[5] Congress is most likely to consider renewing the provision as part of its consideration of the “extenders,” a grab bag of provisions that regularly expire and are regularly renewed by Congress.[6]

Table 1: Monthly Commuting Amounts Excluded from Income Tax under “Qualified Transportation Fringe” Provision

Year

Parking

Transit Passes & Commuter Vehicles

Bicycle Commuting Reimbursement

1999

$155

$60

-

2000

$175

$65

-

2001

$180

$65

-

2002

$185

$100

-

2003

$190

$100

-

2004

$195

$100

-

2005

$200

$105

-

2006

$205

$105

-

2007

$215

$110

-

2008

$220

$115

-

2009 (through February 28)

$230

$120

$20 x qualified months

2009 (from March 1)

$230

$230

$20 x qualified months

2010

$230

$230

$20 x qualified months

2011

$230

$230

$20 x qualified months

2012 (during the year)

$240

$125

$20 x qualified months

2012 (retroactive)

$240

$240

$20 x qualified months

2013

$245

$245

$20 x qualified months

2014 (if parity provision is not renewed)

$250

$130

$20 x qualified months

2014 (if parity provision is renewed)

$250

$245

$20 x qualified months

 

The tax code is probably the wrong place to be subsidizing commuters, and the entire provision ought to be eliminated. If Congress wishes to retain it, it ought to consider a non-expiring unified exclusion of all transportation commuting expenses. This would resolve the confusing, costly, and long-delayed implementation this year of a 2006 IRS directive that the transit benefit cannot be used for parking at transit stations.[7] Transit agencies have thus been forced to separate out amounts paid by commuters for transit passes from amounts paid for parking at transit stations. A unified exclusion for all transportation commuting expenses would also substitute neutrality for the current arbitrary encouragement of driving over carpooling, transit use, and bicycling.



[1] See 26 U.S.C. § 132(f).

[2] See Joseph Henchman, Income Tax Code No Longer Favors Parking Over Transit, Tax Foundation Tax Policy Blog, Mar. 3, 2009, http://taxfoundation.org/blog/income-tax-code-no-longer-favors-parking-over-transit.

[3] See Joseph Henchman, Income Tax Code No Longer Favors Parking Over Transit… For Now, Tax Foundation Fiscal Fact No. 349 (Jan. 7, 2013), http://taxfoundation.org/article/income-tax-code-no-longer-favors-parking-over-transit-now.

[4] See Internal Revenue Service, Retroactive Increase in Excludible Transit Benefits for 2012 (Aug. 9, 2013), http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Retroactive-Increase-in-Excludible-Transit-Benefits.

[5] See Congressional Research Service, Margot L. Crandall-Hollick, An Overview of Tax Provisions Expiring in 2012, Table 2 (Sept. 24, 2012), http://www.fas.org/sgp/crs/misc/R42485.pdf.

[6] See, e.g., Gerald Prante, List of Tax Provisions Scheduled to Expire on December 31, 2010, Tax Foundation Tax Policy Blog, May 26, 2010, http://taxfoundation.org/article/list-tax-provisions-scheduled-expire-december-31-2010.

[7] Rev. Rul. 2006-57 (Nov. 20, 2006); Notice 2008-74 (delaying implementation until Jan. 1, 2010); Notice 2010-94 (delaying implementation until Jan. 1, 2012); Notice 2012-38 (reviewing implementation issues). 

 

Subscribe to the Tax Foundation Newsletter

Follow Us

About the Tax Policy Blog

Subscribe to Tax Foundation - Tax Foundation's Tax Policy Blog The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.

Monthly Archive