HR1, the tax bill signed into law on December 22, has spurred a “massive influx of confusion” regarding transportation benefits. So said Kendle Bjelland, program manager at Commute Seattle.
While some employers believe the bill has cut all tax subsidies offered by employers for parking and transit, this is not true. It has cut only one kind of subsidy, and the effects are likely to be minimal. Indeed, the bill may lead employers to increase transit subsidies relative to parking subsidies – good news for boosters of trains and buses.
Previously, employers could write off $255 monthly in corporate taxes per employee subsidized for either transit or parking. That is no longer the case, although these subsidies do continue to benefit employers by reducing the payroll tax.
More important, employees can still take a pre-tax benefit for transit and parking subsidies; in other words, these do not count as income. This means that the majority of commuter transportation programs are unlikely to be affected by the tax changes.
ACT’s Jason Pavluchuk
“There is not hard data on the number of employers who subsidize transit passes verses offering pre-tax,” said Jason Pavluchuk, a lobbyist for the Association for Commuter Transportation. “Anecdotally speaking, and having talked to many of the transit providers … usually about 75 percent of the employers and their clients offer the transit benefit pre-tax.”
On the other hand, employers tend to directly subsidize parking, anecdotally at least, making change more likely. Overall, in response to HR1, “Some businesses are likely to stop subsidizing their employees’ mass transit and parking costs while allowing employees to contribute their own dollars through pretax payroll programs,” according to the Society for Human Resource Management.
In addition, the tax change will not affect parking for businesses “where an employer owns the space,” or parking “is bundled into” the leasing agreement, said Pavluchuk. However, this is less relevant in cities like Washington D.C. that rely mainly on third-party parking.
With overall tax cuts helping corporate bottom lines, it seems likely that most employers will maintain existing subsidies.
The bicycle subsidy of $20 a month is different. It will be changed in a way “completely the reverse” of parking and transit benefits, Pavluchuk said. Employers will be able to write off benefits for bicycling, but individuals will have to pay taxes on this subsidy. Still, if you “now pay $3 a month, you are still netting $17 of the original $20, Pavluchuk added.
Even so, the majority of commuters do not choose this subsidy, since it is tricky to implement and incompatible with the far larger subsidies available for parking or transit, Bjelland explained.
An unexpected benefit
While the current administration and Congress are not thought of as particularly transit friendly, the recent tax cuts may actually lead to an increase in transit benefits relative to parking benefits. This is because, nationally, more employers subsidize parking than transit, at least according to anecdotal evidence.
“There is an opportunity for the mobility world to reach out to employers and have them rethink their employees’ commuting options,” Pavluchuk said. As companies alter their policies in reaction to these tax cuts, benefits are likely to change in transit’s favor.
For already transit-friendly cities, the tax bill seems unlikely to have much impact. For Seattle employers, for instance, “the desire to give commuter benefits to employees is not driven by the desire to do it cheaply and save money. It’s driven by the desire to attract and retain employees,” Bjelland said. Even where transit is less entrenched, employers will simply switch to pre-tax benefits, so that “I don’t think it will make a huge difference,” she added.
The tax cuts are also likely to stimulate rethinking of transportation benefits among companies, again in a way likely to benefit transit.
“As more employers open up to the idea that they’re going to get taxed on subsidized parking, they may look to expand or increase their transit offerings,” Pavluchuk said.
HR1 may even lead to a period of implementing new transit benefits. Tax reform “has loomed over the heads of employers for a long time, and many employers have been weary to introduce a new benefit,” he said.
With a more certain future, companies may now choose to initiate transit benefits that they had been contemplating but had put on hold. Cities, too, may advance transit plans.
Although most businesses will likely retain benefits for transit and parking – even if a few do choose to get rid of them – because there are currently more parking benefits, this will likely mean an overall reduction in the ratio of driving subsidies to parking.
Furthermore, businesses are moving toward greater transit benefits already and this is unlikely to change. “The public is coming to expect corporations to put out sustainability reports that demonstrate the ways they’re reducing emissions,” Bjelland said.
With transit and biking among the best ways to avoid greenhouse gases, this environmental consciousness is likely to spur continued commuter benefits.
Wither infrastructure?
The looming question for transportation advocates of all kinds is whether the tax cuts will hurt future projects. In the short term, the answer is not much, Pavluchuk said, because existing funding is already established, for instance for Washington, D.C.’s Metro system.
In the slightly longer term, however, “it makes passing a long-term infrastructure bill that much more challenging,” he said. Because of the tortuous process by which it was passed, the new tax law requires “additional discretionary cuts.” However, as the budget restricts important projects, the question becomes what to cut.
The massive tax cut thus would seem directly at odds with President Trump’s plans for a massive infrastructure program. Any new transit money from the federal government “will have to be paid through significant cuts, or an increase in revenue,” Pavluchuk said. “No one knows what they’re getting for the next six years. There is no pot of gold at the end of the rainbow.”
Unless something big is passed in 2018, this will be an unfavorable period for new projects.
During the election, Trump promised a trillion-dollar infrastructure boom. The Trump administration now hopes for the federal government to provide $200 billion for its infrastructure program, intended to leverage state and private money. Unless the leverage is extremely effective, this will collide with lower taxes and the expressed desire for balanced budgets. Something will have to give.
As we enter a frigid new year, both transit and road advocates can hold their breaths at the coming fight over investment.
Photo by Julian Ortiz/Flickr.