February 26, 2020 New Jersey employers of 20 or more employees must offer pretax transportation fringe benefits by March 1, 2020 New Jersey employers of 20 or more employees are reminded that they are required, as of March 1, 2020, to offer transportation fringe benefits to employees. As we previously reported, in March 2019, New Jersey Governor Phil Murphy approved legislation to require employers of 20 or more employees to offer transportation fringe benefits to their employees or give them the option of purchasing the benefits (also known as a commuter tax benefit) with pretax contributions. The legislation (SB 1567) takes effect upon the earlier of March 1, 2020 or the effective date of regulations to be adopted by the New Jersey Department of Labor & Workforce Development. If employees are covered by a collective bargaining agreement, the employer is not required to offer the new benefit until the expiration of the agreement covering those employees. The Department has not yet released proposed regulations governing the requirement. (EY Payroll Newsflash Vol. 20, #047, 3-20-2019.) Penalties Employers found to be noncompliant may be assessed a civil penalty of $100 to $250 for the first violation. Employers will have 90 days from the date of the violation to offer the transportation fringe benefit program to employees before the fine is imposed. After 90 days, each additional 30-day period in which an employer fails to offer the benefit constitutes a subsequent violation subject to a $250 penalty. Federal tax benefit, but no tax break in New Jersey For purposes of federal income tax, federal income tax withholding and Social Security/Medicare (FICA), employee pretax contributions for transportation benefits reduce taxable wages up to the monthly maximum, which for 2020 is $270 per month for transit or van pool benefits. (IRC Section 132(f)). Under New Jersey law (N.J.S.A. 54A:6-23.a), commuter transportation benefits are excluded from income tax and income tax withholding if provided directly by the employer. On the other hand, if the benefits are purchased with pretax contributions, those pretax contributions do not reduce the wages subject to New Jersey income tax and income tax withholding. (New Jersey TB-24(R), December 2010.) Accordingly, the New Jersey exclusion for commuter transportation benefits differs from the federal exclusion primarily in one way — for the New Jersey tax exclusion, the benefit must be provided in addition to regular compensation and not as part of a compensation reduction plan or agreement. Until New Jersey law is amended, New Jersey employees will enjoy only a federal tax benefit from purchasing their commuter benefits with pretax dollars. New Jersey Transit Corporation offers support The New Jersey Transit Corporation provides information on the NJ TRANSIT website on how employers may offer employees mass transit benefits. Employers could opt-in to either the NJ TRANSIT Bulk Sales program or one of the third-party providers shown on the website. Some payroll service companies also offer a transit pretax benefit option. Another option would be a third-party vanpool. See also the Ridewise website. Pretax commuter benefits can be structured as an employee-funded payroll deduction; as an employer-funded benefit (note that under the TCJA employer provided transportation fringe benefits are no longer deductible); 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. For more information, contact the NJ TRANSIT Bulk Sales program at +1 973 491 7288, or contact providers listed above. Ernst & Young LLP insights New Jersey is the first state to require that employers provide transportation fringe benefits to their employees, but several localities have a similar mandate (e.g., Berkeley, Los Angeles, Richmond, and San Francisco, California; New York City; Seattle; and Washington, DC). ———————————————
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