Transit Benefits and (US) Taxes

February 28, 2014 11:04 AM

Does being enrolled in a pre-tax transit benefits program affect how much you owe/get back when you do your taxes?

I'm not very knowledgeable re: taxes, so I'm sorry if this is a stupid question.

For most (but not all) of 2012 I was enrolled in a pre-tax transit benefits program at my work. When I did taxes for that year I got a federal refund, albeit a small one.

I did not partake in the transit program in 2013. When I did taxes today for that year, I owed $133. Both years were done with TurboTax.

I did get a raise in 2013, so I think that played the biggest role. My situation is fairly simple from a tax standpoint (single, no kids, don't own a home, one source of income, no investments, standard deduction, etc.). The one thing that's special about it is that I'm paying off my student loans, for which I can deduct interest, and apparently I paid less in interest in 2013 than I did in 2012. So that played a role too.

But I'm also wondering if the fact that I didn't do the transit program in 2013 affected this as well. When I enrolled, the literature said that it helped you save money, but I wasn't sure if they meant it helped you save at taxtime, or at the present time. The HR people were either vague or didn't quite understand my question.

I know you aren't my accountants, but would re-enrolling in the transit program now help me get a refund (or not pay as much) when I do taxes next year? I'm very confused. Thanks in advance.

posted by anonymous to Work & Money (7 answers total)

There were changes to the commuter tax benefit this year I think. I'm not eligible for it so I don't recall the details but I believe it was dramatically reduced.

Edit: Just googled - that is going forward for federal employees - it will be halved in 2014.
posted by srboisvert at 11:09 AM on February 28, 2014

Pre-tax programs like this work by deducting money from your gross paycheck to pay for them. So instead of making, say, $4000 gross per month, getting taxed at 30%, and having net take-home of $2800, you'd make $4000 gross, less the $100 for the transit program, and getting taxed on the rest, making your net pay $2730. So you're paying 30% less for the $100 that the transit program costs.

(This is assuming your transit program gives you something like a transit pass at reduced rates, or a transit account or reimbursement.)
posted by supercres at 11:11 AM on February 28, 2014

It may have played a role, but probably not as big as the other things you mentioned.

The way it works is that you don't have to pay taxes on the money set aside for transit benefits. So, say you set aside $50 every month for those benefits (taken out of your paycheck), and at the end of the year, you don't have to pay taxes on those $600. Depending on how much you make, that probably saves you $100-$200. If your withholding wasn't adjusted to take that into account, then it would show up in your refund come tax time.

If you really want a refund at the end of the year, you can adjust your withholding such that your employer takes more out of each paycheck and you get it back at the end of the year.
posted by ultraviolet catastrophe at 11:16 AM on February 28, 2014

You don't want to optimize your tax refund in April of the next year. That is relatively immaterial, compared to reduce your total tax, paid over the whole year (which includes your refund or additional payment at tax return time). This amount is shown on your 1040 (line 61 for year 2013).

Enrollment in a qualified transit plan can reduce your taxable income, which should reduce your total tax. But, of course, you don't get to apply that to non-transit uses.

The easiest way to get a refund is to pay extra tax. For example, you could write the IRS a check for $1000 every quarter. Then you would get a $4000 refund! You can arbitrarily make the refund as large as you want in this way. Of course, giving the IRS an interest-free loan in this way usually serves no other purpose.
posted by grouse at 11:20 AM on February 28, 2014 [3 favorites]

There's also an income phase-out on student loan interest deductions, so not only did you pay less in interest this year, you may have gotten to deduct less of it if you made more money.
posted by hwyengr at 11:35 AM on February 28, 2014

If your taxes are very simple, I would urge you to sit down and read through your tax form to see how taxes are figured out and how withholdings and refunds work.

There are several pre-tax programs that will save you a little bit of money on your total taxes - it will save you (roughly) your top tax bracket times the amount of money you put in the program. So yes, not enrolling in the program would increase your tax burden a little bit.

Whether or not it will affect what you owe or get refunded on April 15th depends on how much money you have withheld for taxes on each paycheck. If you have more money withholded than you owe, you get a refund. If you don't withhold enough, you have to pay a bit more. In my opinion, getting a small refund or owing a small amount of money is ideal - it sounds like that is where you are right now.
posted by muddgirl at 12:06 PM on February 28, 2014

This also depends on what form your transit benefits come in. If you drive for work during work hours (not to and from work) in your personal vehicle, you legally can track every mile and get a return. However, you would have had to have been doing it all year.

I get reimbursed monthly, but if for some reason I missed the deadline for it, I can submit it at tax time to get my 0.56 a mile or whatever my bus/train tickets cost me.

So if you had been logging it, you may be able to submit it to your taxes that way. Though, I've never had to as my job does it for me, so I do not know the ins and outs.
posted by AlexiaSky at 5:13 PM on February 28, 2014