The Commuter Tax Benefit is a provision in the Federal Tax Code (Section 132(f)) that lets employers offer their employees pre-tax salary set-aside for up to $340 per month to pay for qualified commuting costs; it also lets employers contribute to their employees’ transit fares as a tax-free benefit.

New York and New Jersey have strengthened the federal law by requiring employers to offer the benefits if their company has 20 or more employees. For decades, the tax benefit has guided commuters toward smart travel choices that reduce congestion and benefit the environment in the Tri-State Metropolitan Region. This analysis is focused on the specific transit benefit for Manhattan-bound Central Business District (CBD) commuters; we show the value that this tax benefit creates for commuters and non-commuters alike, and what might happen in the region if the benefit ended. 

Today, over 5.5 million people employed in the Tri-State Metropolitan Region have access to Transit Tax Benefits. The lion’s share of these commuters, close to 30%, work in the Manhattan CBD, where 84% of CBD entries during the morning peak are transit users. The most tangible way to grasp the scale of the program’s benefits is to quantify the potential damages from doing away with it. To that end, we pose the counter-factual case where there is no Transit Benefit. Our model estimates the number of CBD-bound transit trips that would switch to automobiles if transit benefit were terminated. The model also computes the transportation-related consequences of those switches.

Given the Manhattan core’s triangular shape, people reach the CBD from three general directions: from the east (from Long Island, including Brooklyn and Queens); from the north (from Westchester, the Bronx, and Manhattan); and from the west (from New Jersey). We divided commuters into these directional groups — Staten Island is included in ​“east” — and further divided them into​“Urban” or​“Suburban” commuters. Urban commuters are from the five New York City boroughs and from Essex, Hudson, and Union Counties in New Jersey.

For each of the six areas, we tabulated the number of transit commuters and car commuters. Our figures draw on NYMTC’s 2023 Hub-Bound Travel Report for vehicle occupancy and time of day entries to the CBD and on the 2019-2023 American Community Survey compiled by the U.S. Census Bureau. We then developed a ​“representative trip” from each zone to the CBD and developed time costs and monetary costs for the same trip by transit and by private automobile. 

Based on the relative costs of transit and private automobiles, we calibrated a mode choice model for each of these​“origin and destination” pairs. Eliminating the transit benefit increases the cost of the transit trip. Based on the new cost ratio we estimated the number of transit users in each sector who would likely switch to using a private automobile. As shown in the table below, between 6,200 and 11,100 additional vehicle trips would be made to the Manhattan CBD each day, increasing vehicle entries by 1-2%.

The range of impacts corresponds to unknowables in people’s transportation decision behavior: A price change has to have a certain magnitude to cause a shift. In some cases people might be willing to pay more than the current cost for a particular mode. For example, someone who is wary about driving in Manhattan will pay a transit premium, while another who has to make multiple stops on the way to or from work may be willing to pay more to drive. 

Alternatively, consider neighbors going to the same work destination. One owns a car (or a second car) and the other does not. The loss of pre-tax benefits could shift the relative cost of their commutes so the car trip becomes cheaper than the transit trip. But the price change doesn’t consider the additional cost to purchase another vehicle. The person without a car might continue to use transit while their neighbor, who already owns a car, is more likely to switch.

There are many reasons a person might continue their current behavior even when the price differentials shift; these unobserved factors suggest that mode choice isn’t based solely on the cost differential that we observe. Our lower estimates account for these unobserved factors. The high estimate assumes switching occurs effortlessly, assuming that commuters will flip their travel choice as soon as the combined monetary and time cost of their transit commute exceeds that of their car commute, and vice versa. The likely true impact would fall between the high and low figures.

The modeling also assumes that eliminating the CTB would first induce transit riders onto the roads, then trigger a partial exodus of some current drivers whom the traffic influx would ​“push out of their cars”; the modeling also allows that some of the early switchers would revert to transit having learned it was still the better choice for them. Absent this assumption—a ​“rebound effect” in reverse—the impacts would be considerably higher. 

The increase in automobile trips shown in Table 1 would generate between 2.2 and 3.8 million additional hours of motorist delay across the NY - NJ metropolitan region each year, an amount large enough to wipe out 16–28% of the gain in CBD travel speeds from congestion pricing. The cost of these travel delays would range between $110 million and $190 million for motorists alone, let alone the costs of worsened travel times for people walking, riding bicycles, or using public transportation, in addition to the costs of worsened air quality borne by everyone.

Transit Providers’ Lost Fare Revenues

Our analysis shows that New York and New Jersey transit providers are realizing between $15.0 million and $25.7 million in additional revenue per year in the CBD sub-market because the pre-tax benefit makes transit commuting more cost-effective. This incentivizes area workers to patronize available transit services more than they would, without the transit benefit. 

Commuters’ Financial Burden

In addition to the revenue loss to transit providers caused by commuters switching modes, those who stick with their transit modes will be paying more for the same commute.

Tax benefit to families and individuals:

While clearly a good thing for transit riders, auto commuters (less traffic), and the entire region, much remains unknown about use of the transit benefit. There is more to consider, which future research could explore.

Limitations include:

• This analysis focused on CBD commuters; yet if transit benefits were to be eliminated, the impact would be felt across the region and across the nation. The benefits of this program are much greater than we’ve estimated for this small geography; accordingly, the disbenefits of losing the program would be much greater than we have described.
• We only considered employee pre-tax savings. A component of the legislation that we didn’t consider in this analysis allows employers to provide a direct cash transit benefit. This is effectively additional compensation that is un-taxed, but restricted to being spent on public transportation. The number or proportion of employers who offer such a benefit is unknown, the amount of benefit they offer is also unknown.
• It is likely that suburban commuters, who, as we show, have more to gain, avail themselves of the commuter tax benefit at higher rates than we have assumed.

Beyond these considerations, there is much to learn about employee participation and, to what extent, employers make the benefit known and easy to use. It is likely that on-going exposure to the program would elicit greater participation. We assumed 45% participation for this report. A 2009 study of BART in the San Francisco Bay Area indicated participation around 80%. Including these elements — employees beyond the CBD, the direct cash benefit, and the effect of information on employee participation — would show a larger impact on the region’s traffic, a benefit to more working families, and additional benefits to the region’s transit providers. 

All of these are important for a fuller understanding of how the transit benefit is used and how it works.

If not for these limitations, we would have expanded the analysis to include employees beyond the CBD, we would have considered the direct cash benefit, and we would have looked at the effect of information on employee participation. Including these elements would show a larger impact on the region’s traffic, a benefit to more working families, and additional benefit to the region’s transit providers. To this extent, the findings here would be considered conservative.

Despite the limitations, the bottom line from this research is that the loss of this long-established benefit would shift transit users to cars, causing additional congestion and vehicle miles traveled, while also placing a financial burden averaging $580 per year on thousands of households in the region. For comparison, these impacts would wipe out roughly one-fifth to one-quarter of the speed improvements that congestion pricing is delivering in the CBD. For a program with a low profile, the transit benefit has a surprisingly robust impact.

By making transit use more affordable, the transit benefit helps reduce highway and street traffic. The resulting reduction in road gridlock constitutes an economic benefit to the region that adds considerably to the direct monetary benefits that the program provides for commuters.

A related though wider and potentially even more productive extension would be to better understand the role of subsidized parking and auto use incentives in the Manhattan CBD. Research done by the Port Authority found that 54%of peak period CBD-bound auto drivers using the Lincoln Tunnel, Holland Tunnel, and George Washington Bridge receive employer-provided/subsidized parking, with some also benefitting from employer-paid tolls (presumably, today, that would include congestion pricing fees as well), company cars, driving allowances, corporate paid black car accounts, and so on. Transit benefits began in New York largely in response to that research finding. Transit benefit are a ​“second best” approach to balance those subsidies. It is time to address that head on.

In sum, the role of employers in determining employee travel decisions, even in New York City, is substantial and perhaps greater than widely appreciated. But much remains unknown. Pre-tax transit benefits and the broader subject of the role of employers in determining commute decisions in and to the Manhattan CBD — remains a promising area for further research and policy attention.