N.Y.: NYC Requires Most Private Employers to Offer Pretax Transit Benefits

By Rosemarie Lally Dec 16, 2014
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Most private employers in New York City soon will be required to offer their employees pretax transit benefits to pay for qualified commuting expenses under the Affordable Transit Act, signed into law by Mayor Bill deBlasio Oct. 20, 2014.

The new law, which goes into effect Jan. 1, 2016, will require private employers with 20 or more full-time employees – defined as those working on average 30 or more hours per week – to provide them with a pretax qualified transportation benefit program.

Federal law allows employers to offer employees the opportunity to set aside a portion of their wages to pay for qualified commuting expenses with pretax dollars, but doesn’t require employers to do so. Now covered employees in New York City will have to offer their full-time employees the opportunity to purchase qualified transportation fringe benefits, other than parking, with their pretax earnings.

Qualified transportation fringe benefits allowed under Section 132(f) of the Internal Revenue Code include transit passes, the cost of transportation in a commuter highway vehicle between home and work, and qualified parking. If an employer voluntarily offers a transit benefit, Section 132(f) excludes qualified transportation fringe benefits from an employee’s gross income. Current monthly limits under federal law are $250 for qualified parking expenses and $130 for transit passes and commuter highway vehicle costs.

The New York City ordinance doesn’t extend to public employers, other employers exempt from federal, state, and city payroll taxes, and most unionized employers. However, unionized employers that have 20 or more full-time employees who are not covered by a collective bargaining agreement must offer the benefit to those employees.

An employee, once determined eligible, will remain eligible throughout his or her tenure with the employer, even if the workforce decreases to fewer than 20 employees.

The new law takes effect Jan. 1, 2016, provided that federal law still allows for the exclusion of qualified transportation benefits from an employee’s gross income and from an employer’s federal payroll tax wages. It will be enforced by the Department of Consumer Affairs. A six-month grace period will be allowed, so penalties for noncompliance won’t be imposed until July 1, 2016. Employers will be given a 90-day window to cure a first violation. Penalties will range from $100 to $250 for a first violation, rising to $250 for each subsequent violation.

Rosemarie Lally, J.D., is a freelance legal writer and editor based in Washington, D.C.
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