The voices of Tax Policy Center's researchers and staff
As a bike freak and a tax geek, you’d think that I’d be thrilled about the new tax break for qualified bicycle-commuting reimbursement. I’ve been riding my bike to work for 30 years, so this new tax expenditure has my name written all over it. The biker in me wants to cry out, “It’s about time!” But the tax geek just groans.Part of the stimulus bill, the new provision allows an exclusion of up to $20 per “qualified bicycle commuting month” for such “reasonable expenses” as bike purchase, improvements, repair, and storage if “the bicycle is regularly used for… a substantial portion of travel between” home and work--and if the employee doesn’t receive other transportation related fringe benefits, such as parking or a transit pass. (See page 19-20 of Employer’s Tax Guide to Fringe Benefits, which is also an excellent sleep aid.)
Green? Maybe, but this is a complicated Rube Goldberg device for trying to encourage people to bike at least part way to work. There’s no plausible way that my employer can verify that I qualify. By counting how many times a month I show up in spandex? How do they know that my pal Bob bikes to the metro? If I skip a few days in January to avoid black ice and possible death, do I still qualify for the break? Do I get extra credit because it’s really cold? And who’s going to pore over my bikeshop receipts to be sure that the expenses are for my bike and not my kid’s? Even if my employer thinks he knows whether I qualify, how could the IRS possibly enforce this?
As it turns out, my employer, the Urban Institute—which has fabulous facilities for bicyclists—won’t offer the benefit because the new law requires that the employer pay. The Institute doesn’t pay for any transit benefits on grounds that it’s unfair to subsidize some employees and not others. It does allow employees to set aside earnings for mass transit (up to $120 per month) and parking (up to $230 per month) through tax-free salary-reduction arrangement, but the bicycle benefit has to be paid by the employer.
This new break is a prime example of how bad tax policy begets more bad tax policy. (See, e.g., AMT, origins.) Originally, employer-provided parking was tax-free, but that came to seem unfair and environmentally unwise. Why encourage people to drive to work? The obvious solution would be to tax parking, but employers complained that it would be hard to value a spot in the employee parking lot. Thus were born the transit benefit, tax breaks for carpooling, and the new benefit for bicyclists.
It is only a matter of time before we see equally complicated and unenforceable tax breaks for walkers and telecommuters. (Karen, who skates to work, will cry foul, but her lobby is too small.)
If we can’t tax parking, why not just eliminate all other commuter tax benefits and instead provide a flat income tax credit of, say, $175 per year for any worker (up to, say, 2% of annual earnings) who doesn’t get a parking subsidy or employee parking. Employers would have to report to the IRS which employees get a parking benefit so the rest could qualify for the credit.
It wouldn’t be perfect—some employees would doubtless park on the street and still claim a credit—but the IRS can’t monitor the current commuting benefits effectively either. At least the flat tax credit wouldn’t discriminate among environmentally friendly alternatives, and it would be a heck of a lot simpler than the strange mishmash we have now.
Happy Earth Day!
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.