New Jersey Pre-Tax Transportation Fringe Benefit: What Does It Mean For You?

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New Jersey has continued to show itself as a top contender in the ever-growing list of states creating new legislation in which businesses must comply. On March 1, 2019, Garden State Governor, Phil Murphy, signed S.B. 1567 into law requiring employers in New Jersey with 20 or more employees to offer a Pre-Tax Transportation Fringe Benefit to their employees.

What is a Transportation Fringe Benefit?

A Transportation Fringe Benefit includes most mass transit reimbursements; van pools, qualified parking, and some other commuter benefits.  The specific law signed by Governor Murphy requires employers to offer pre-tax transportation benefits for

    • Transportation in a commuter highway vehicle, e.g. a city bus or a shuttle; and
    • Transit passes applicable to busses, trains, shuttles, etc.

It however does not require an employer to offer a qualified parking benefit, although they may do so if they choose.

How is the benefit offered?

Pre-tax transportation fringe benefits can be offered directly by employers or through third-party providers. The transportation fringe benefit is not subject to payroll tax for the employer or the employee, allowing both the employer and employee to reduce their federal tax payments.

Example: A commuter pass or train/bus tickets would be provided/sold to the employee by the employer or a third party. The payment would then be made for the pass or train/buss ticket through pre-tax deductions from the employer. Purchasing the pass or train/bus tickets from the employer or third party is the proof and documentation that the pre-tax deduction was for a commuter benefit.  During the remainder of 2019, both New Jersey and the IRS will allow employees to exclude commuter transportation benefits provided by employers, up to $265 per month, equivalent to $3,180 per year.  Amounts greater than this must be included in the employee’s taxable income.

Assuming employees have the max deducted each month ($265), savings per employee for a year would be:

7.65% [FICA Tax] x $3180 [$265 x 12 months] = $243.27

Large restaurants, of 100 employees for example, could save up to $24,327 [$243.27 savings x 100 employees] on payroll taxes.

Unfortunately, the cost of plan administration is not a deductible expense under §13304 of P.L. 115-97, which is a change to the Internal Revenue Code from the Tax Cuts and Jobs Act of 2017.

What is the rollout timing?

According to the ordinance, the act was effective immediately but will remain inoperative/unenforced until March 1, 2020.

What are the penalties if not followed?

The New Jersey Department of Labor and Workforce Development is responsible for plan oversight and can issue citations to employers for violations.  Employers that fail to comply with the commuter benefit requirements are fined $100 to $250 for a first violation, unless they comply with the requirements within 90 days after being found in violation. After this 90-day period, each additional 30-day period of noncompliance is considered a subsequent violation.  Employers are fined $250 for each subsequent violation but can’t be fined more than once in any 30-day period. Fines could amount to $2500 in the first twelve months alone — up to $250 for first three months and then $250 for the next nine months.  The fines in the second year would increase to $3000 ($250 each month).

How can RASI assist?

RASI provides payroll stubs for every employee with cumulative annual pre-tax commuter deduction amounts, and Check Registers for every payroll with employees’ pre-tax commuter benefit deduction amounts and company totals. By utilizing industry experts with a specialized compliance team, we are able provide a monthly/quarterly payroll report depicting individual employee totals and company totals so restaurants can ensure they remain compliant within the law!

Resources:

NJ Governor – Phil Murphy’s Statement About Transportation Fringe Benefit

NJ Pre-Tax Transportation Fringe Benefits Official Law