In April 2019, New Jersey became the first state to require employers to offer pre-tax transit benefits to their employees, joining a growing list of cities passing transit mandates across the country. Recently, the City of Seattle passed a Commuter Benefits Ordinance that became effective on Jan. 1, 2020, becoming the latest city to require employers to provide this type of benefit.
Transit & parking benefits refresher.
A transportation benefit program offers employees tax-advantaged benefits to pay for parking, public transportation and vanpooling expenses incurred commuting to and from the workplace. These benefits fall into two accounts: Transit/Vanpool and Parking accounts.
The maximum monthly contribution and reimbursement amounts are indexed annually for inflation and have increased by $5 for 2020. Here’s a quick refresher as to what each benefit entails:
Transit and Vanpool Eligible Expenses:
- $270 pre-tax per month set aside to pay for mass transit and vanpooling expenses.
- Ticket vouchers for public transportation (including subways, ferries, and buses) and costs to participate in an employer-sponsored vanpool.
- Uber and Lyft may qualify.
- Bridge or highway toll expenses are not eligible for reimbursement.
- $270 pre-tax per month allocated for parking expenses at/near work or public transportation lot.
Places that have implemented transit benefit mandates.
Let’s now discuss the cities and states who now mandate that employers provide these benefits.
Keep in mind that these examples are not a comprehensive list, and many other cities across the country have transportation mandates or are introducing them. We recommend you check with your broker or tax professional to discuss applicable programs for your area.
On Jan. 1, 2016, Washington, D.C.’s Transit Benefits Requirement Act took effect. Under the law, employers with at least 20 employees working in D.C. must offer transit benefits in the form of one of the three following options:
- Employee-paid, pre-tax benefit allowing employees to set aside income on a pre-tax basis to cover qualified transit expenses;
- Employer-paid, direct benefit offering a tax-free employer subsidy for qualified transit expenses; or
- Employer-provided transportation offering a shuttle or vanpool service at no cost to employees.
New York City
Also on Jan. 1, 2016, New York City’s Commuter Benefits Law took effect. Under this law, “for-profit and nonprofit employers with 20 or more full-time, non-union employees in NYC must offer their full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits.”
On March 1, 2019, New Jersey signed a bill into law that requires every employer with at least 20 employees to offer all employees the opportunity to deduct commuter highway vehicle and transit expenses from their gross income.
For more information on who these laws affect, and whether there are penalties for non-compliance, continue reading here.
New in 2020: Seattle’s Commuter Benefits Ordinance.
On Jan. 1, 2020, the City of Seattle’s Commuter Benefits Ordinance took effect. The law requires every employer with 20 or more employees (including part-time, seasonal and temporary workers) to offer the opportunity for their employees to make a monthly pre-tax payroll deduction for transit or vanpool expenses. Alternatively, covered employers may provide partial or fully employer-paid transit passes to employees to satisfy this requirement.
The city hopes that by encouraging commuters to use transit options aside from single-occupancy vehicles, there will be a reduction in traffic congestion and carbon emissions.
Who does this affect?
The ordinance applies to businesses that employ at least 20 employees worldwide but does not apply to government entities and tax-exempt organizations.
The ordinance applies to any employee that worked at least an average of 10 hours per week in the previous month. Employers must offer the pre-tax deduction within 60 days of the employee commencing employment. Once an employee selects the pre-tax deduction, the business must provide the deduction within 30 calendar days.
Are there penalties for non-compliance?
Employers are required to comply with the ordinance beginning Jan. 1, 2020. However, The Seattle Office of Labor Standards (OLS) will not take enforcement action until Jan. 1, 2021.
OLS, Seattle Department of Transportation (SDOT), Commute Seattle and other community partners are more concerned about educating workers and the business community, including small businesses, about the ordinance during the period before enforcement begins.
Check out Seattle’s OLS page here to see the Commuter Benefits Q&A and Summary, for more information.
Because the deduction is pre-tax, Seattle’s ordinance has the added benefit of lowering the tax bills for both workers and businesses. For an example of how an employee and an employer can save on taxes, click here.
PrimePay can help.
- Pre- and post-tax contribution management to meet the transit mandate requirements for eligible transit services.
- Debit card convenience for purchasing qualified transit expenses.
- Optional: Add a parking account to allow employees to use pre-tax income to pay for qualified parking expenses under federal tax law. No additional administrative fee to add this account.
Click here to learn more or fill out the form below.
Disclaimer: Please note that this is not all-inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding the specific application of the information to your own plan.