Commuting has mixed motives: one must travel to get to work (business motive), but the extent and burden of the travel is the result of the personal choice about where to live (personal motive). However, there is no middle ground under the tax law; an expense is classified as either personal or business. Under current law, it is well established that commuting expenses are personal, and thus, nondeductible expenses under the tax law (e.g., Comm'r v. Flowers, 326 U.S. 465 (1946)). However, in the wake of COVID-19, working from home has become the new normal. Many people who used to commute to work no longer have the same amount of expenditure for commuting, such as gas and metro passes. What are the normative implications of such changed behavior? Hayes Holderness offers his views in his recent essay, Changing Lanes: Tax Relief for Commuters (forthcoming in Va. Tax Rev.).
In this essay, Holderness discusses that the key factor in determining whether commuting expenses should be deductible is whether the commute is for the convenience of the employer or the employee. Before COVID-19, commuting expenses have typically been disallowed as a deduction because it is a personal decision where the employee lives and commutes from. Pre-pandemic, commuting was not done for the employer’s convenience.
However, the author argues that the COVID-19 pandemic has changed this perception. 71.7% of employees who had a choice between working from home and working in person during the pandemic chose to work from home. Research also indicates that “an increasing percentage of workers would prefer to work from home after the pandemic and that employers are increasingly embracing work from home.” Thus, in this digital age, and with the help of the COVID-19 pandemic, commuting to work is becoming more for the convenience of the employer than the employee. Therefore, with these facts, the author argues that it is time to reconsider the nature of commuting as a deductible expense.
For instance, during COVID-19, most people were required or at least preferred to work from home for their safety. Essential workers, however, were still required to commute to work. The author makes the assumption that essential workers, if they had jobs where working from home was an option, would overwhelmingly choose to work from home. Thus, for these essential employees, during the pandemic the commute to work is more for the convenience of the employer than for the employee, and there is a case to be made that the commuting hours should be a deductible expense.
This argument may only be valid while there are health risks present that are not normally there for essential workers. When the pandemic is finally over and people are able to commute again, can author's argument still have merits? The author believes so. Teleworking is where we are headed and this pandemic has illustrated that a significant number of jobs can be performed entirely at home--research indicates this to be at 37%. The author argues that telecommuting will be the “standard expectation” and that commuting will be for the convenience of the employer and should be a deductible expense. COVID-19 merely helped speed up the change from commuting being for the convenience of the employee to being for the convenience of the employer.
In regard to how the commuting expenses should be accounted for on the return, the author states that a tax credit makes more sense than a tax deduction for commuting because commuting remains a mixed motive expense, where a tax credit could be tailored to provide a specific tax benefit. Tax law already takes the credit approach with another type of mixed motive expenses--child and dependent care expenses. Legislators or administrators could decide what a reasonable amount of commuting expenses is and allow a tax credit to give tax relief equivalent to a deduction for those expenses. The author argues that the credit-based approach could better serve for redistribution, because deductions for commuting expenses, even if capped, would disproportionately subsidize higher-income taxpayers.
The credit approach proposed in the essay is a very interesting idea, but there are many important issues to consider. Although both the child and dependent care expenses and commuting expenses have mixed motives, there are qualitative difference in the rationales behind tax expenditures of the two. Tax expenditures on the child and dependent care expenses may support individuals in marginal cases, who are forced to choose between work and staying at home, whereas those on commuting expenses benefit a broader group of taxpayers whose choice is between living far from work or living close to work. Then the question remains whether we can find a good policy justification for equity, efficiency, or administrability, to include commuting expenses in tax credits. Current tax policy has been built upon an understanding that commuting is a choice of lifestyle, but the pandemic may have changed that commuting is a matter of public health and survival. Answering this question may open up a modern discussion on the tax expenditure policies of mixed motive expenses, which I hope the author can take this role in this essay and in future projects.