Rail commuter benefit tax exemptions

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Rail commuter benefit tax exemptions, part of the U.S. IRS code under Transportation (Commuting) Benefits[1] are employer-provided incentives to encourage alternatives to automobile commuting. These benefits are also known as "transportation fringe benefits."[2] Under this policy, employers may offer the incentives in one of three ways: 1) employers may cover the full cost of qualified transportation fringe benefits, 2) employers may allow employees to use pre-tax dollars to pay for transportation costs, or 3) employers and employees may share the costs of qualified transportation benefits. Regardless of type of commuter benefit used, the policy reduces federal or payroll taxes to one or both parties. As of December 18, 2015, the total allowable value of provided transportation benefits was $255 per month per employee.[2] States may implement additional tax incentive programs to encourage employers to provide transportation benefits to their employers on top of the federal benefit tax exemptions.

CONCEPT


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Goals
Conceptual Example

Under current laws, any employer in the United States may take advantage of qualified commuter benefits, and offer commuter benefits to its employees. However, a state with significant commuting traffic around its large metropolitan areas may want to encourage use of rail commuter benefits to decrease congestion, traffic accidents, and air pollution, and encourage rail transit ridership. To accomplish these goals, the state adopts a law mandating all for-profit and nonprofit employers with 50 or more full-time employees must offer their full-time employees the opportunity to use pre-tax income to purchase qualified commuter benefits, and implements policy further incentivizing rail transit by offering a state tax credit of 50% the cost of the pass, up to $60 per employee per month, to employers providing rail transit passes to their employees.

Specific Example

In 1999, Maryland created a commuter benefit tax credit for businesses under Senate Bill 390, (Chapter 559), and expanded those benefits in 2000 under Senate Bill 244, (Chapter 357, Acts of 2000), known as the Commuter Benefits Act of 2000.[3] These bills allow employers to apply a tax credit to "MTA passes, fare cards, smart cards or vouchers used by employees to ride publicly or privately owned transit systems except taxi services, company Vanpool programs, company guaranteed Ride Home programs, and company Cash in Lieu of Parking programs,"[4] One of the most generous state commuter tax incentives, Maryland allows any person or corporation conducting business in Maryland, as well as any organization operating in Maryland under 501(c)(3) or 501(c)(4) tax exemption status, to qualify for the credit. This tax credit is in addition to the reduction of employment taxes allowed under the IRS's Transportation (Commuting) Benefits allowances, and may be applied to corporate income tax, personal income tax, state and local taxes withheld (for tax-exempt organizations) or insurance premiums tax.[4] The Maryland Commuter Tax Benefit Program may be applied to 50% of the cost of providing eligible commuter benefits, for up to $50 per month per participating employee.[4]

Tradeoffs

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Tradeoffs of implementing this policy may include:

  1. Crowded transit due to increased ridership.[5]
  2. Increased taxes.[5]
  3. Transit-oriented development may price out residents surrounding transit stops.[6]
  4. Weak incentives to reduce driving.[7]
  5. Low buy-in by companies due to complexity, cost, and lack of demand.[8]
Compatibility Assessment

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If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:

  1. Is the target location a dense metropolitan area?
  2. Are parking and traffic pressures strong?
  3. Is the employment environment competitive enough to incentivize offering additional benefits?
  4. Does a reliable rail transit system connect residential areas with commercial areas?
  5. Can the jurisdiction afford to lose the tax revenue that would be devoted to this program?
  6. Does the jurisdiction have the administrative capacity to implement the tax benefit policy?
Design

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Assuming that a jurisdiction has decided to adopt the policy, the following questions will need to be answered when determining how to implement this policy:

  1. Is there sufficient demand in our area to support active rail transit ridership?
    1. If yes, will the rail system require additional maintenance and staffing with additional ridership, and will additional funds be available for that?
    2. If no, are rail capital improvement projects feasible?
  2. Will employers be encouraged to offer rail commuter benefits, or will they be required to offer them?
    1. E.g., in New York City, for-profit and nonprofit employers with 20 or more full-time non-union employees must offer their full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits,[9] while Maryland incentivizes voluntary implementation of commuter benefits by offering tax credits to employers. [3]
  3. What size of employer will be allowed or required to offer rail commuter tax benefits to its employees?
  4. If the rail commuter tax benefits will be voluntary, will the incentive take the form of a tax credit or a deduction?
  5. What will the amount of the tax benefit be?
    1. Will the tax benefit allow additional incentives to the current federal benefit amount, or will it encourage a higher amount of benefit to employees?
    2. Will the tax benefit be minimal, as in Georgia, where employers are offered a $25 annual tax credit for each employee who utilizes the federal transportation fringe benefits, [10] or generous, as in Maryland, where employers are offered up to $50 per month per employee participating in the commuter tax benefits program?[3]


ADOPTION


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PolicyGraphics
  • Has adoption of: LIMITED. While federally offered to all employers, commuter benefit tax exemptions are only incentivized on a state-wide level in eight states: California, Colorado, Connecticut, Delaware, Georgia, Maryland, Minnesota and Washington. Additionally, only five cities and the San Fransisco region require employers to offer commuter tax benefits.[11]
Adopters
  • Notable entities who have implemented or adopted this policy include:
    • Country of United States of America- U.S. IRS code allows employers to offer write-offs of transit benefits provided to employees.[1]
    • State of Maryland - Offers employers a tax credit worth 50% off of the cost of transportation benefits for up to $50 per month per employee participating.[4]
    • State of Georgia - Allows employers a $25 annual tax credit per employee taking advantage of federal qualified transportation fringe benefit.[12]
    • State of Minnesota - Provides corporations a 30% credit equal to the difference between the price the corporation paid for transit passes and the price charged employees for the passes.[13]
    • State of Oregon - Employers subsidizing or purchasing transit passes for their employees may apply for the Business Energy Tax Credit program. [14]
    • City of New York City - Requires employers with 20 or more non-union employees to offer federal qualified transportation fringe benefits to their employees.[9]


STAKEHOLDERS


Supporters

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Opponents

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REFERENCES


Research

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Resources

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  • Commuter Benefit Accounts (2016) WageWorks. Wageworks provides step-by-step guides for employers, employees, and transit benefit brokers.
  • The Best Workplaces for Commuters (2016). Best Workplaces for Commuters Web Site. This website is an employer-focused guide to becoming a "best workplace for commuters," focusing on providing alternative commute options for employees.
  • IRS Fringe Benefits (2016). IRS Publication 15-B. This publication describes the legal framework allowing for federal commuting (fringe) tax benefits.
  • Evaluating Public Transit Benefits and Costs.. Victoria Transit Policy Institute. (15 September 2016). Best Practices Guidebook. This guidebook leads practitioners through the evaluative process to determine the values of transit systems for a given metropolitan area.


Footnotes
  1. 1.0 1.1 [1]. Department of the Treasury, Internal Revenue Service (2016) "Employer's Tax Guide to Fringe Benefits." Publication 15-B.
  2. 2.0 2.1 2.2 [2]. National Center for Transit Research (2016). "Commuter Tax Benefits, Qualified Transportation Fringe Benefits Summary Table."
  3. 3.0 3.1 3.2 [3]. Comptroller of Maryland (2009). Maryland Income Tax Administrative Release No. 36. Cite error: Invalid <ref> tag; name "Maryland_Income_Tax_Administrative_Release_No._36." defined multiple times with different content Cite error: Invalid <ref> tag; name "Maryland_Income_Tax_Administrative_Release_No._36." defined multiple times with different content
  4. 4.0 4.1 4.2 4.3 [4]. Comptroller of Maryland (2016). "Commuter Tax Credit." Cite error: Invalid <ref> tag; name "Commuter_Tax_Credit." defined multiple times with different content
  5. 5.0 5.1 5.2 5.3 5.4 [5]. Cervero, R, and Guerra, E. (April 2011) "To T or Not to T: A Ballpark Assessment of the Costs and Benefits of Urban Rail Transportation." Journal of Public Works Management Policy, vol. 16, no. 2. Pg 111-128. Cite error: Invalid <ref> tag; name "To_T_or_Not_to_T:_A_Ballpark_Assessment_of_the_Costs_and_Benefits_of_Urban_Rail_Transportation." defined multiple times with different content Cite error: Invalid <ref> tag; name "To_T_or_Not_to_T:_A_Ballpark_Assessment_of_the_Costs_and_Benefits_of_Urban_Rail_Transportation." defined multiple times with different content
  6. [6]. Victoria Transit Policy Institute. (15 September 2016) "Evaluating Public Transit Benefits and Costs." Best Practices Guidebook.
  7. [7]. Jaffe, E. (1 August, 2014) "It's Amazing How Many More Commuters Would Drive Less if They Didn't Get Free Parking" CityLab
  8. [8]. Josephson, A. (28 January, 2015) "4 Things You Didn’t Know About Commuter Tax Breaks." Smart Asset Web Site.
  9. 9.0 9.1 [9] City of New York. (16 November, 2016) "NYC Commuter Benefits Law FAQs." Cite error: Invalid <ref> tag; name "NYC_Commuter_Benefits_Law_FAQs." defined multiple times with different content
  10. [10] (2016) "Georgia Commutes Tax Benefits." Georgia Commute Options Web Site.
  11. 11.0 11.1 11.2 11.3 11.4 [11] Lally, R. (1 December, 2015). "Two More Cities to Require Employer-Provided Transit Benefits." Society for Human Resource Management blog. Cite error: Invalid <ref> tag; name "Two_More_Cities_to_Require_Employer-Provided_Transit_Benefits." defined multiple times with different content Cite error: Invalid <ref> tag; name "Two_More_Cities_to_Require_Employer-Provided_Transit_Benefits." defined multiple times with different content Cite error: Invalid <ref> tag; name "Two_More_Cities_to_Require_Employer-Provided_Transit_Benefits." defined multiple times with different content Cite error: Invalid <ref> tag; name "Two_More_Cities_to_Require_Employer-Provided_Transit_Benefits." defined multiple times with different content
  12. [12] O.C.G.A. § 48-7-29.3 (2009) "State Income Tax Credit for Qualified Transportation Fringe Benefits."
  13. [13] (2016) "Federal and State Tax Resources for Minnesota." Metro Transit Web Site.
  14. [14] (2016) "Transportation." Oregon Department of Energy.
  15. 15.0 15.1 [15](2016). Best Workplaces for Commuters Web Site. Cite error: Invalid <ref> tag; name "Best_Workplaces_for_Commuters." defined multiple times with different content
  16. 16.0 16.1 16.2 [16] Manville, M. (March 2014). "Why Do Voters Support Public Transportation?" Transportation, Vol. 42, Issue 2. Cite error: Invalid <ref> tag; name "Why_Do_Voters_Support_Public_Transportation.3F" defined multiple times with different content Cite error: Invalid <ref> tag; name "Why_Do_Voters_Support_Public_Transportation.3F" defined multiple times with different content
  17. [17] Dart First State (2016). "The Environmental Benefits of Riding Public Transit." Delaware Division of Waste and Hazardous Substances Web Site.
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