Commuter tax benefits

Beginning March 1, 2020, New Jersey employers with 20+ employees will be required to offer pre-tax transportation fringe benefits to their employees. The law (Senate Bill No. 1567) was signed by Governor Phil Murphy on March 1, 2019.

What does this law mean?

Under this law, employers must allow employees to set aside a portion of their pre-tax wages to be used to cover costs associated with using mass transit, parking or vanpooling.  The maximum tax-free amount employees can set aside in 2020 is $270 per month.

How much pre-tax salary can be used?

Employees may use up to $3,240/year towards their mass transit commute without paying federal income tax on this salary.  Commuter benefits can be structured as an employee-funded tax-free payroll deduction; as an employer-funded benefit; or the costs can be shared by employer and employee. The benefit can be delivered in the form of transit passes or universally accepted vouchers and debit cards.

The employee deductions reduces the amount of payroll being taxed. This means a savings of up to 7.65% on average, on payroll taxes for the employer. The more employees that enroll, the greater the savings.

Are vanpools eligible for this benefit?

Yes, third-party vanpools are included in the pre-tax transit benefit. They are allowed to use the same amount, up to $270/month per employee. Third-party vanpools involve a contracted leased vehicle and an organized vanpool. Employees sharing a ride in a personal vehicle (carpooling) are not an eligible vanpool.

What do employers need to do?

Employers need to either register for the benefit program with NJ TRANSIT (for bus/rail passes) or through their payroll provider.  Most payroll service companies offer a transit pre-tax benefit option. A common name for the benefit is “commuter tax benefit”.

What if my worksite/workplace isn’t served by any mass transit?

There may be more transit in the area than you think.  Contact RideWise for assistance in finding bus/rail services in and around Somerset County.

The New Jersey Commission of Labor and Workplace Development will administer the program and is expected to release implementation rules and guidance prior to 3/1/2020. For more information, please visit the New Jersey State Government’s website.