New Jersey has become the first state to mandate employers provide pretax transit benefits to staff. With the signature of Senate Bill 1567, New Jersey Major Phillip Murphy said the Bill was aimed to help workers offset some of the costs and taxes of commuting, particularly in light of a recent 36% increase in the cost of public transit.
The bill applies to businesses subject to the state’s unemployment compensation laws and who employ more than 20 staff members. Federal workers, who receive pretax transit benefits under Federal guidelines, are exempt. The New Jersey law requires businesses to provide the benefit at the maximum levels allowed under federal law and IRS Code. These include updates following the Tax Cuts and Job Act of 2017.
Employees and businesses may contribute to a commuter benefit fund under the IRS guidelines for 2019, Employees and their companies (if they care to contribute) may set aside up to $265 per month for transit or parking expenses. They are being broken down by types of funds. Money set aside for transportation may not be used for parking nor vice versa.
Employees can use their pretax transit benefits to pay for any public transportation costs and vouchers up to $265.per month. Eligible transport systems include trains, subways, buses, ferries, or trolleys.
While employees can’t use their commuter benefit for cabs or Uber, there are provisions for Vanpools. A vanpool is a ride share of three or more in a vehicle that seats at least 7 adults (including the driver). Employees can set aside up to $265 per month if 80% of the vehicle’s annual mileage is dedicated to commuting. These can include Lyft Line and UberPOOL ride shares.
Employees may set aside up to $265 per month for parking at or near a work site, or at or near a location from which the employee commutes via public transportation or vanpool.
As the New Jersey Governor remarked, the price of commuting continues to rise, putting the pressure on employees to get to work in a cost-conscious manner. It’s estimated that staffers can save up to 40% of the cost of their commute if they take advantage of these pre-tax transit accounts.
Prior to the taxable year 2018, employers were able to deduct any contribution they made into an employee’s qualified transportation fringe benefits from their corporate tax bill. Starting in 2018, under the new law, that tax break was removed. Although the employer deduction was removed, business and employees can still set aside pre-tax dollars to offset commuting costs.
Even though the deduction for businesses that paid into a transit benefit has been removed, there are still tax benefits to employers whose staffers use these funds. The pre-tax deduction reduces the staff member’s taxable wages, lowering the company’s FICA matching contribution. Encouraging employees to participate in these programs not only saves them money and offsets the costs of transportation; their savings translate into lower tax contributions on their and their employer’s part.
The New Jersey law goes into effect on the date the Governor signed it, March 1, 2019, but the state recognizes it is “inoperative,” for the time being. This means no fines or penalties will be imposed on employers until the New Jersey Commissioner of Labor and Workplace Development has an opportunity to implement rules and regulations or March 1, 2020, whichever comes first.
Future penalties for employers who do not offer the benefit will begin between $100 and $250 for the first violation. After 90 days, if the benefit is still not provided, employers can be fined an additional $250 for every 30 days they until it’s offered.
While New Jersey is the first statewide mandate to provide these benefits otherwise optionally allowed under federal tax guidelines, other cities and counties have similar laws. Whether you’re required to offer transit benefits or not, they’re a smart choice for companies to encourage among their staff. Business and employees will enjoy the savings on payroll taxes, and they help lower carbon emissions by using public transportation or ride sharing. They’re a winning choice for business, employees and the environment.