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Bicycle Commuting Incentives: US v UK

by Stacey Moses

The juxtaposition of the bicycle commuter benefits offered by the United States and the United Kingdom is, in a word, revealing.  As of January 1, 2009, the Bicycle Commuter Act, which is part of the Renewable Energy Tax Credit legislation, has given US employers the ability to contribute to employees’ commuting expenses as a non-taxable fringe benefit.  In the UK, employers and employees have enjoyed the Cycle to Work scheme since 1999.  The idea behind both of these government programs is to encourage and to assist people who choose to ride to work, but the incentives offered in each program could not be more different.

Cyclist in a SuitThrough the Bicycle Commuter Act, participating US companies can offer their employees up to twenty dollars per month if the employee commutes into work regularly on a bicycle and does not receive any other transportation reimbursement benefits.  That’s $240 in the pocket of the year-round, dedicated American bike commuter, assuming that his or her employer is on board with the Bicycle Commuter Act.  An employee that grosses anywhere from $34,000 to $82,400 annually pays approximately 25% in federal income taxes, which means that the government forfeits up to about $60 per commuter in this tax bracket to help the employer incentivize this alternate form of transportation through a tax-free benefit (note: I’m not an accountant and the actual tax rate is not a full 25% of the gross salary, so please excuse my back-of-the-envelope calculation).  For comparison, the US federal government funded the Car Allowance Rebate System program, or Cash for Clunkers, in 2009 with $3 billion to encourage drivers of old, fume-exuding cars to upgrade to new, fuel-efficient automobiles to reduce pollution.  The estimated cost of the program per person was $2,000.

In the UK, the Cycle to Work scheme allows employers to purchase bicycles and cycling safety equipment free of tax to loan to employees for transportation purposes.  As long as the employee is using the bicycle regularly for at least part of his or her commute, there is no stated limit with regards to how much can be spent on the bike, and safety equipment is defined by common sense (although bicycles exceeding £1,000 [$1600 US] now require additional approval).  In some instances, the employer covers the cost of the bike and equipment and in other cases, the employee agrees to a salary sacrifice in which he receives the benefit, tax free, instead of a portion of his salary.

The notion is the same.  The execution is not.  There are considerations such as infrastructure, culture and education to understand as well before making a blanket statement about each country’s commitment to bicycle commuting.  But, the priorities within the US transportation budget are evident when you compare cycling incentives to driving incentives, and the UK demonstrates that it is possible to place a stronger emphasis on alternative transportation solutions.

 
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4 Responses to “Bicycle Commuting Incentives: US v UK”

  1. Kevin Love says:

    Well, I am an accountant, and you want to be using the marginal tax rate. That is the tax paid on the last dollars earned, or the highest tax bracket that the taxpayer is in.

    Also, don’t US states piggy-back their state income taxes on the federal tax? Then you want to use the combined marginal tax rate.

    I presume that someone in the USA has come up with a combined state/federal income tax calculator similar to the one at:

    http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2010-Personal-Tax

  2. Ted Johnson says:

    @Kevin: Stacey estimated that the Federal Government forfeits $60 per participant (within a particular tax bracket). As an accountant, what would your estimate of the cost per participant in the American program?

  3. Kevin Love says:

    @Ted,

    That cost would be the $60 from the feds, state tax reductions piggy-backed on federal taxes and administration costs.

  4. That cost would be the $60 from the feds, state tax reductions piggy-backed on federal taxes and administration costs.

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