The state of New Jersey enacted a commuter statute in March of 2020 that changed the requirements for organizations’ employer-provided commuter benefits. Offering commuter benefits to employees is not required under federal law, but some cities and states, such as New Jersey, have enacted laws within the past few years that require employers to provide a commuter program.
What are commuter benefits?
The commuter benefit is a tax-free fringe benefit, authorized by the Internal Revenue Code 132(f), that allows your employees to pay for certain commuting costs using pre-tax money.
What are considered eligible commuting expenses?
The pre-tax commuter benefit covers transit, parking, and vanpool and ridesharing costs, including:
- Transportation to or from work via subway, train, bus or ferry
- Parking at or near the office at meters, garages or lots
- Parking at a commuter lot where commuters transfer to mass transit
- Vanpool fees
- Ridesharing fees with UberPool and Lyft Shared1
Savings all around
How do companies save?
Let’s say Company X has a total of 1,000 employees and a 30% participation rate of the transit benefit. Company X ends up saving $6,075 each month on payroll taxes, which adds up to $72,900 a year. Double that amount if the employee takes advantage of BOTH transit and parking benefits. And the savings will grow as more employees take advantage of the benefit.
How do employees save?
Here’s an example: an employee makes $55,000 a year. They spend $270 on their monthly train pass, and they buy 12 monthly passes each year. Since the pass is paid for pre-tax, the taxable income after federal income taxes will be reduced to $40,372, which means a savings of approximately $7002 for the year.
Simple tax savings
| Without commuter benefits | With commuter benefits | ||
|---|---|---|---|
| Gross annual pay (estimate) | $55,000 | Gross annual pay (estimate) | $55,000 |
| Estimated tax rate (22%) | -$12,100 | Estimated tax rate (22%) | -$11,388 |
| Net annual pay | =$42,900 | Adjusted gross annual pay | =$51,760 |
| Estimated annual commuting expenses* | -$3,240 | Maximum annual commuter account contributions | -$3,240 |
| Final annual pay | =$39,600 | Final annual pay | =$40,372 |
| You take home this much more annually: $712 | |||
What is the New Jersey commuter benefit law?
What does the commuter benefit law require?
The New Jersey law requires employers with at least 20 employees in a New Jersey office to offer a pre-tax transportation benefit to their employees. The law excludes federal government employees and those who are currently covered by a collective bargaining agreement. Non-profits and state or local government employers are not exempt from offering the commuter benefit.
Frequently asked questions
When will the New Jersey commuter benefit law go into effect?
This law went into effect on March 1, 2020. Any company found in violation of the law after this date will have 90 days to comply with the law before any penalties are imposed.
What is the penalty for failing to comply?
The penalty for failing to comply with this commuter benefit law will be a fine of $250 per month.
Are the penalties per company or per employee?
Penalties are imposed per company.
Employers have 90 days to fix violations before penalties are imposed. How does that work?
If your company is fined for failing to comply with the New Jersey commuter benefit law, you will have 90 days to comply in order to avoid the penalty.
Do my employees have to be residents of New Jersey to qualify for the benefit?
No, they just have to work in the state of New Jersey.
What happens if a company doesn’t comply within that 90-day window?
Any company that doesn’t comply during the 90-day violation window will be charged with a subsequent violation and will have to pay an additional $250 penalty every 30 days until compliance is completed.
Who will enforce the New Jersey commuter benefit law?
The Department of Labor and Workforce Development will enforce the legislation.
Do I have to offer the commuter benefit to employees who don't work in New Jersey?
While the New Jersey law does not require you to offer this benefit outside of New Jersey, there are several city ordinances requiring employers to offer a commuter benefit. Commuter benefits are currently required by law in:
- Seattle, Washington
- New York City
- Washington, DC
- Berkeley, California
- Richmond, California
- San Francisco, California
- New Jersey *new
- Los Angeles, California *coming soon
My business is headquartered outside of New Jersey. Does the law still apply?
It depends on whether you have offices in New Jersey. If you have 20 or more employees that work in a New Jersey office, then yes, the law applies to your company.
What if an employee doesn’t want the benefit?
If employees don’t want to take advantage of saving on their commuting costs with commuter benefits, that is their choice. You only need to offer a commuter benefit program.
What do I have to do?
Option 1: In-house management
- Notify each employee in writing that the benefit is available.
- Written proof/confirmation from every employee that they have been given the opportunity to participate.
- Maintain detailed records of employees that have either opted into the program or declined to participate.
Option 2: Commuter benefit provider (RECOMMENDED)
Partner with an experienced commuter benefit provider who will assist you with every step of the process of implementing a successful commuter benefit program.
Choosing the right partner: why Alight?
Disclaimer: Alight is not a law firm and does not provide legal advice to clients; you should seek advice of counsel in developing a plan to comply with city/state requirements applicable to provision of commuter benefits.
1. Qualified UberPooL and Lyft Shared rides apply to vehicles with a seat capacity of at least 6 more adults (not including the driver).
2. Estimated employee savings are for informational purposes only and are based upon monthly pre-tax deductions of $270 for the 2020 tax year. Individual savings may vary based upon income, individual tax rates, state of residence and other factors. Please consult your tax advisor.
3. Edenred, Alight’s Commuter Benefits partner, is partnered with UberPool, Lyft Shared and Via to name a few. These services are qualified expenses when purchased with your commuter benefits prepaid debit card.
