The economic stimulus package signed into law by President Obama yesterday includes a provision that increases the amount of mass transit and vanpool benefits that can be excluded from an employee's gross income.

The economic stimulus package increases the monthly exclusion for employer-provided transit and vanpool benefits to the same level as the exclusion for employer-provided parking, which is $230 in 2009. Before the law, only $120 per month in benefits for either transportation in a commuter vehicle or transit pass were excludable from gross income in 2009. Under the new law, the commuter vehicle/transit pass and parking benefits that can excluded from gross income will be indexed at the same level for 2010 as well.

The transportation-benefits provision in the stimulus package is effective for months beginning on or after date of enactment, which was February 17. The provision expires at the end of the 2010 tax year.

Qualified transportation fringe benefits provided by an employer are excluded from an employee's gross income for income tax purposes and from an employee's wages for payroll tax purposes.

TransitCenter, Inc., a nonprofit that promotes the use of mass transit, says that both employers and employees will save money under the provision.

The group projects that employees who take advantage of the benefit will be able to save up to $1,000 a year or more, representing a potential $440 a year increase in what they can save if their commuting expenses exceed the former monthly cap of $120 per month. Employers that offer the benefit can save up to an additional $100 per employee per year in payroll taxes, the group says.