New Jersey Employees to Be Entitled to Pre-Tax Transportation Fringe Benefits
New Jersey will soon become the first state to require certain employers to offer employees tax-favored transportation benefits.
S.B. 1567, also known as An Act Concerning Pre-Tax Transportation Fringe Benefits (the “Act”), will require New Jersey employers with 20 or more employees to offer employees the opportunity to make pre-tax elections from their gross pay to cover qualifying commuter vehicle and public transit costs.
Employees will be able to use the pre-tax benefits to cover certain costs relating to “alternate means of commuting” (that is, commuting other than by means of single-occupancy vehicles), including transit passes for various forms of public transportation, car and van pools, and qualified parking at “park and ride” transit facilities. For purposes of the Act, “employee” and “employer” are defined as under the state’s unemployment compensation law, though employees covered by a collective bargaining agreement are exempted from coverage.
The Act comes in response to the federal Tax Cuts and Jobs Act of 2017, which eliminated employers’ ability to deduct the cost of providing qualified transportation benefits to employees, thus disincentivizing employers from offering such a benefit (though elections may still be excluded from employees’ wages for federal tax purposes). While New Jersey is the first state to pass legislation aimed at protecting this benefit for employees, some municipalities, including New York City, previously have enacted similar laws.
The Act will require that transit benefit elections be permitted “at the maximum benefit levels” allowable under federal law. For 2019, such maximum benefit is $265 per month, up from $260 per month in 2018.
The Act is effective immediately, though enforcement will not begin until the earlier of March 1, 2020 or the effective date of rules and regulations to be issued by the state Commission of Labor and Workforce Development. Once effective, employers who fail to comply with the requirements of the Act will be assessed a $100-$250 fine for a first-time violation, following a 90-day grace period to cure. After 90 days, covered employers will be subject to a $250 penalty for each additional 30 day period in which they fail to provide the benefit. Employers may also be responsible for costs and interest related to recovery of penalties.
Though the Act is not likely to take effect until next year, employers in New Jersey should begin reviewing their existing benefit plans to prepare for compliance with the new law.