New Jersey Employers to Offer Pre-Tax Transit Benefits

April 16, 2019

New Jersey has passed a law requiring that certain employers offer pre-tax transportation fringe benefits (“Transit Benefits”). This new benefit will allow employees to set aside pre-tax dollars for certain work-related commuting expenses, such as parking costs, transit passes and vanpooling. The law will be effective the earlier of March 1, 2020, or the effective date of implementing regulations (which have not yet been issued). The effective date as to union-represented employees is tied to the expiration date of any collective bargaining agreement in effect as of March 1, 2019.

Under the law, every employer subject to New Jersey’s unemployment compensation law that employs at least 20 employees is required to offer Transit Benefits to all employees who are not currently covered by a collective bargaining agreement. The law will not apply to the federal government in its capacity as an “employer,” but there appears to be no exception for nonprofits or state or local governmental employers, though implementing regulations may further clarify the scope of employers subject to the law. See the Governor’s signing statement for more on the exception.

Under the law, covered New Jersey employers must allow employees to use pre-tax dollars to pay for certain work-related commuting expenses. These expenses include qualified parking, transit passes, and vanpooling. The law requires that the New Jersey Transit Benefits be provided at the federal maximum benefit levels. Federal tax law establishes a maximum amount of transportation fringe benefits that employees can exclude from federal income taxes and Social Security taxes. These limits are subject to annual increases for inflation. For 2019, the maximum benefit levels are $265 per month for qualified parking and $265 per month for vanpooling and transit passes (combined). Click here for FAQs providing details on the federal law (IRC Section 132) provided by NJ Transit.

Covered New Jersey employers should begin considering this new law and should also watch for implementing regulations. The subject of Transit Benefits should be included in the negotiation of any new or renewal collective bargaining agreement that takes effect after March 1, 2019. All covered employers should start taking steps to implement a Transit Benefit program, such as exploring options with payroll providers and third-party vendors. And all employers should be prepared to respond to employee inquiries since the law requires New Jersey Transit to conduct a public awareness campaign encouraging the public to contact employers about Transit Benefits.

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