Transit riders’ tax break may shrink

By Associated Press
December 10, 2010

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WASHINGTON — A tax break that is about to shrink would force hundreds of thousands to pay more for a daily expense: commuting to work. Currently, mass transit riders can save up to $1,000 a year under a federal tax break that may be reduced after Dec. 31.

Unless Congress acts, their savings will be cut nearly in half. That would be especially painful in New York and Washington, where transit fares have increased.

The head of the largest transit authority in Massachusetts predicted a smaller federal tax subsidy would reduce ridership, especially for people living farthest from Boston, who must buy the most expensive train tickets.

“I’m sure we’ll lose some ridership,’’ said Richard Davey, general manager of the Massachusetts Bay Transportation Authority.

“Given our fiscal situation,’’ he said, “I’m trying to do everything I can to build ridership.’’

The tax break works like a health savings account: Workers can set aside up to $230 a month to cover transit costs. The money is not taxed. Starting next year, the accounts will be limited to $120 a month. Congress temporarily raised that limit as part of a stimulus package it passed in 2009. Some Democrats are fighting to renew the higher limit. But the Senate rejected it last weekend as part of a broader tax-cut measure.

Supporters say the higher limit encourages commuters to choose mass transit over cars, reducing traffic and pollution. Drivers can already use up to $230 a month in pretax money for parking. Mass transit advocates say it’s only fair to give riders the same savings.

“If we’re going to be providing a tax break for parking, at a minimum we ought to have the same break for people who take public transit,’’ said Randy Rentschler, a spokesman for the Metropolitan Transportation Commission in Oakland, Calif.

About 850,000 workers use the mass transit tax break, according to TransitCenter, a nonprofit that helps employers offer the benefit. Commuting costs will rise 18 percent for workers who max out on their pretax accounts.

The tax break has existed since 1984. But its amount had always lagged behind the amount for parking subsidies, until it was raised last year.

News of its expiration has passed largely unnoticed. Its annual cost is about $106 million a year. Democrats want to extend the transit subsidy; Republicans are prepared to let it revert to its lower limit.