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Transit commuters get parity with parkers

The fiscal cliff deal restored a tax benefit for commuters who use mass transit, making it worth the same as a tax break for those who drive and park.

By MSN Money Partner Feb 4, 2013 12:19PM

This post is by Ashlea Ebeling of Forbes.


Businessman and bus (© Photodisc Green/Getty Images)There's good news for train, subway and van pool riders hidden in the 157-page fiscal cliff deal -- an extension of pretax benefits for transit commuters on par with parking benefits. That means $550 and up a year in tax savings per commuter, retroactive to 2012. An estimated 2.7 million families (mine included) will gain from this break.


"It's significant pocketbook relief," says Steven Higashide, federal advocate for the Tri-State Transportation Campaign, a watchdog group that advocates for environmentally sustainable transportation for hundreds of thousands of commuters in New York, New Jersey and Connecticut. "Not having parity between transit and parking is completely backwards, and it’s great news that Congress has fixed this (through 2013)," Higashide says, adding, "We certainly shouldn’t be encouraging driving over public transit through the tax code."


That’s been the rallying cry of those pushing to restore the transit parity provision that began in 2009 but expired at the end of 2011.


Here’s how it works. In 2011, assuming your employer offered a plan, you could put away $230 a month pretax salary to use for transit (bus, rail, trolley, subway or ferry), and you could put away $230 a month pretax salary to use for parking. But then the parity provision expired, so on Jan. 1, 2012, the $230 a month went up to $240 a month for parking (indexed for inflation) while the limit for transit dropped to just $125 a month.

Now the fiscal cliff deal has restored the transit parity provision retroactively. How much of a difference does the equalized limit make? If you're in the 40% combined federal and state tax bracket and can select $240 a month in pretax transit benefits, instead of just $125 a month, you save $552 a year. For 2013, for high earners who are subject to the new 39.6% top federal income tax rate, the benefit is even greater.


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.


For 2013, the monthly limit will be raised from $240 to $245. Meanwhile, Dietel and Higashide vow to continue to push for permanent parity for transit riders and parkers.


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