New Jersey require employers to offer pre-tax transportation fringe benefits
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Wednesday, June 5, 2019

New Jersey require employers to offer pre-tax transportation fringe benefits

By Payroll and Entitlements Editorial Staff

New Jersey has become the first state to require employers to offer pre-tax transportation fringe benefits to employees. Under the NJ Transit Benefits Law (SB No. 1567), employers with a least 20 employees must offer employees the option to pay for transit passes, transportation in a commuter highway vehicle (vanpooling), and qualified parking on a pre-tax basis. The law requires that the pre-tax election be provided at the maximum benefit level allowable under federal law (Code Sec. 132(f))—currently, $265 per month for vanpooling and/or transit passes and $265 per month of qualified parking. No penalties will be assessed for noncompliance until the earlier of March 1, 2020, or the effective date of implementing rules and regulations. Significantly, New Jersey’s new mandate comes at a time when employer-provided transportation benefits are no longer deductible by employers for federal tax purposes. Under the 2017 Tax Cuts and Jobs Act, no deduction is allowed for any qualified transportation fringe benefit provided to an employee (Code Sec. 274(a)(4)). Moreover, the IRS has interpreted the no-deduction rule to apply to transportation benefits provided through pre-tax salary reductions (see IRS Pub. 15-B, Employer’s Tax Guide to Fringe Benefits (2019)). Qualified transportation benefits continue to be excludable from employee’s incomes. (SB No. 1567, Laws 2019; approved and effective March 1.)

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