Starting in 2016, certain New York City employers will be required to offer pre-tax transit benefits. As part of the Affordable Transit Act signed into law back in October of 2014, New York City employers located within the 5 boroughs with 20 or more full-time employees must offer this benefit.
The IRS allows employers to offer the ability to exclude qualified transportation fringe benefits from gross income. The option to provide these benefits is voluntary and not mandated by federal law. Qualified transportation fringe benefits include transportation expenses up to $130 per month which may reduce compensation and not only save employee’s tax but employer’s payroll taxes. For the average New York City commuter, the tax savings would be approximately $400 per year. In addition, employers can expect to save about $120 per year per employee in payroll taxes.
The New York City Transit Ordinance removes the voluntary provision and mandates applicable New York City employers to offer pre-tax transit benefits. As stated above, an employer must be located in New York City and have 20 or more full-time employees. A full-time employee is defined as an employee who works (on average) 30 or more hours per week for the employer. Once an employee qualifies for the benefit, they will remain eligible regardless of the weekly hours worked. The law will be enforced by the Department of Consumer Affairs and takes effect January 1, 2016. Companies that do not comply will be subject to a civil penalty. No penalty will be imposed prior to July 1, 2016. Companies that receive a first time notice of noncompliance will receive a $250 civil penalty and will have a 90 day grace period to fix the problem. If after the grace period expires and the employer still does not comply, an additional $250 civil penalty will be issued for every 30 day period in which the employer fails to put a pre-tax transit benefit plan in place.
Although the law mandates employers within New York City with more than 20 employees to get plans in place by January 1st of next year, companies that are not located within New York City or have 20 employees are eligible to offer these same types of savings to their employees. The new law makes commuting more affordable for those employees that have not benefited from pre-tax transit plans. The tax savings for employees and employers alike should make compliance with the new law sensible.
–John Rosenberger, CPA, Tax Manager