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A bigger tax break for those who take public transit

Bebeto Matthews / AP

About 2.7 million families will benefit from the tax break for taking mass transit.

Transit riders will get a bigger tax break this year, thanks to a provision tucked into the legislation that averted a fall off the fiscal cliff.

As part of the American Taxpayer Relief Act of 2013, Congress decided that for 2013 people who take mass transit to work will get the same pretax benefits as those who drive and pay to park their car. Both can set aside up to $245 a month to cover these expenses, if their employer offers such a plan.

That’s a big change from last year, when employees could set aside up to $240 a month to park, but only $125 a month for transit expenses. In 2011, the tax savings had been the same for parking or public transportation.

Now parity is back and that could mean more savings for transit commuters.

“Someone in the highest federal tax bracket – 30 to 39.6 percent – could save about $570 a year. Someone in the 15 percent tax bracket could save about $260 a year,” explained Lisa Greene-Lewis, lead CPA at the American Tax and Financial Center at TurboTax. 

According to Bloomberg News, about 2.7 million families will benefit from this tax break.

“It’s not so much the dollar value; it’s the parity,” said Jon Martz, a vice president at vRide, which provides vanpool services in about 60 different urban areas in the country. “Why give people an incentive to commute in single occupancy cars? Give them a benefit of equal value for choosing to take public transportation, if they can do it.”

And there’s more good news. Congress made the change retroactive. It’s as if the higher limit of $240 had been in effect for transit riders all last year. The IRS already gave employers guidance on how to put that money back into their employees’ paychecks.

If you used this program last year and didn’t see an adjustment in your paycheck to cover the reimbursement, talk to your employer. If you haven’t been told about the higher limits for 2013 and want to put more aside, contact human resources.

Moving forward

The fiscal cliff deal only guaranteed an equal tax break for commuters who drive and those who take public transit for 2013. Those who support public transportation want this provision to be permanent.

“We need Congress to act to finally make the transit and the parking benefits equal so that all commuters are on a level playing field,” said Steven Higashide, a senior planner at the Tri-State Transportation Campaign, a non-profit watchdog group that serves New York, New Jersey and Connecticut. “This will create an incentive for transit riders and take more cars off the road.”

Frank Linkchorst, an aerospace engineer in California, agrees. He rides a vanpool weekdays from his home in El Segundo to work in Los Angeles 38 miles away. It’s cheaper and faster than being in a car.

“Anything that encourages people to rideshare is helpful,” he told me. “With 10 of us in that van, that’s nine fewer cars on the road at any given time – and that helps everybody.”

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Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.