Although federal law does not require an employer to offer commuter benefits to its employees, state law may soon do just that. As of March 1, 2020, or once the New Jersey Commissioner of Labor and Workplace Development promulgates regulations, New Jersey employers with 20 or more employees must begin to offer pre-tax commuter benefits to all employees working in New Jersey (excluding those employees covered by a collective bargaining agreement) under the New Jersey Transit Benefits Law. The Law permits employees to set aside from their pre-tax wages specific transportation service costs through a commuter benefit plan established by the employer.
Employers that have not already established a pre-tax commuter benefit plan should do so as soon as possible. The commuter benefit can be structured as an employee-funded tax-free payroll deduction or as an employer-funded benefit, or the costs can be shared by employer and employee. The benefit can be delivered in the form of transit provider-specific passes or universally accepted vouchers and debit cards. An employer may consider opting-in to the NJ Transit Bulk Sales program or utilizing the services of a third-party vendor that offers a pre-tax commuter benefit program.
The Law requires that the transit benefits be provided “at the maximum benefit levels” allowable under federal law, to be deducted for those programs from an employee’s gross income pursuant to Section 132(f)(2) of the Internal Revenue Code. The federal Tax Cuts and Jobs Act (TCJA) provides for the exclusion of transportation benefits provided to an employee up to the following limits: (a) $265 in monthly parking expenses, and (b) $265 in monthly transit expenses. The result: such qualified transportation expenses (i.e., rides in a commuter highway vehicle, transit passes, or qualified parking) are excluded from the employee’s taxable wage(s). Employers can provide such transportation benefits directly to the employee or through a bona fide reimbursement arrangement or compensation reduction agreement. Employers, however, may not deduct payments for qualified transportation benefits under the TCJA.
Employers that fail to offer such benefits will be subject to monetary penalties imposed by the New Jersey Commissioner of Labor and Workplace Development of not less than $100 and not more than $250 for a first violation. The employer will have 90 days to offer the employees transit benefits before the penalty is imposed. If the employer continues to not offer such benefits after 90 days, each additional 30 days in which the employer fails to make such offer will be considered a subsequent violation, subject to a penalty of $250.