Commuter Tax Benefit – What NJ Employers Need to Know
What is the Commuter Tax Benefit?
The Federal Government allows employees to set aside a certain portion of pre-tax wages, which can be used for mass transit commuting costs and qualified parking. These pre-tax wages are not subject to federal income taxes, Social Security taxes, or Medicare taxes. For 2020 the Federal Government allows a pre-tax commuter benefit up to $270 per month. If the employee needs to pay for parking in order to make a transit connection, the parking fees can be funded with pre-tax dollars up to an additional $270 per month.
Why is this important to NJ Employers?
Governor Phil Murphy recently signed a bill into law making it mandatory for New Jersey employers of at least 20 employees to offer a pre-tax transportation fringe benefit to employees (who are not currently in a collective bargaining agreement) beginning March 1, 2020.
What Do NJ Employers Need to Do?
Employers need to establish a written commuter benefit program, setting forth precisely the terms and conditions of participation, benefits and their limitations, and other relevant program terms. If your union contract does not already contain the commuter benefit, your next union negotiation may have to include this benefit. Employers should contact a third party to administer the program.
Once the program is established it is important that employers communicate the specific details of the program to employees in writing.
What Are NJ State Penalties for Non-compliance?
Employers that fail to comply with the law are subject to a penalty ranging from $100 to $250 for the first violation. Before a penalty is imposed, however, employers will have 90 days from the date of the violation to offer the pre-tax transportation fringe benefit program.
If, after the 90-day cure period, the employer does not adopt a pre-tax transportation fringe benefit, it will be subject to a $250 penalty for each additional 30-day period in which an employer fails to offer the benefit.
How will this impact payroll processing?
Once you have established your method for offering your employees the pre-tax transportation fringe benefit, you may configure your payroll process to make the appropriate deductions. If you need help with setting this up, contact your service team.