New Jersey Employers Required to Offer Mandatory Pre-Tax Transportation Fringe Benefits
On March 1, 2019, Governor Phil Murphy signed into law Senate Bill No. 1567, “An Act concerning pre-tax transportation fringe benefits” (“Act”), which requires New Jersey employers with at least 20 employees to offer pre-tax transportation fringe benefits to its employees. Transportation fringe benefits include employees’ costs incurred for alternative means of commuting such as public transportation, carpools, van pools, bus pools, ferries, bicycling, telecommuting and walking, including parking at park-and-ride lots. This legislation was enacted in response to the Federal Tax Cuts and Jobs Act of 2017 (“TCJA”) which changed the law regarding transportation fringe benefits to provide that no employer deduction is allowed for qualified transportation fringe benefits incurred or paid after 2017. However, the TCJA did not alter the fringe benefits income tax exclusion rules which apply to payments deferred by employees from their compensation for these transportation fringe benefits which are excluded from taxable income.
Under the Act, certain employers are required to provide elective pre-tax transportation fringe benefits for commuter highway vehicles and transit benefits, that are consistent with the provisions and limits of Internal Revenue Code §132(f)(1) which include (1) commuter highway vehicle benefits, (2) transit passes and (3) qualified parking. The maximum benefit amounts are those allowable under federal law which, for 2019, is $265 per month for combination of commuter highway vehicle benefits and transit passes and $265 per month for qualified parking.
The Act does not apply to employers with fewer than 20 employees. If an employer has union employees, the union employees are counted as employees. However, the employer does not have to offer transportation fringe benefits to the union employees until the expiration of any collective bargaining agreement in effect on the Act’s effective date. Although the Act is effective immediately, enforcement will not begin until the earlier of March 1, 2020, or the effective date of implementing the rules and regulations by the New Jersey Commissioner of Labor and Workplace Development.
Penalties apply to employers who fail to abide with this requirement of not less than $100 and not more than $250 for a first violation. Employers will be afforded 90 days to offer the employee these benefits before a penalty is imposed. In the event the employer fails to comply within this 90-day period, each additional 30 days in which the employer fails to make the offer of these benefits is to be considered a separate subsequent violation, subject to a penalty of $250.
Employers with at least 20 employees should begin taking steps to establish transportation fringe benefits programs so they can be properly implemented and administered on or before the effective date. This may require employers to setup arrangements with third party vendors to administer these plans and will require employers to amend employee handbooks accordingly.