Is the pre-tax benefit the same as a flexible spending plan?
It will appear that way to employees but this benefit is different on the payroll side. Pre-tax transit is under IRS code, Section 132(f), Qualified Transportation Fringe. It is not part of Section 125.
Pre-tax transit is open to everyone. There are no eligibility requirements, enrollment timeframes nor reporting required. It may be offered to union, non-union, full time as well as part time employees. The more employees that participate in the pre-tax transit benefit, the more the employer saves on payroll costs.
Pre-tax transit is not a "use it or lose it" benefit. It is intended to be deducted and used each month. However, since employers capture the payroll deductions upfront, the employee uses the deductions on a rolling basis. The deductions do not evaporate if not used, they store. Vouchers do have expiration dates, usually 13 months from when the employer purchases them.
Is this something that can be claimed on your taxes at the end of the year?
No. The deductions are made throughout the year on a pre-tax basis. It lowers taxable wages. The savings comes by not paying federal income tax on that salary throughout the year.
Is this a tax write-off?
Is the pre-tax transit benefit the same as a transit subsidy?
No. They have a shared history and are related in regulations but are not the same.
Pre-tax transit is using the employee's own salary before taxes to pay towards their mass transit commute. A transit subsidy is when the employer provides employees with a transit benefit above and beyond the employee's salary. A subsidy is employer-paid and given free. A subsidy is tax-free for the employee and tax-deductible for the employer. This option is also capped at $245/month.
A combination of the pre-tax and subsidy options is also allowed. Employers may offer a transit subsidy and allow employees to use the remainder of the cap with their own pre-tax salary. The combination benefit is capped at $245/month. For example, an employer offers employees a $20/month transit subsidy as an incentive to reduce the number of cars parking at their facility. With the current cap of $245/month, subtract the $20/month subsidy provided and that is the amount an employee could use from their pre-tax salary. In this example, the employees could use up to $225/month of their own pre-tax salary, bringing them to the full amount allowed.
Can an employee use both the pre-tax transit and parking benefit?
Yes, depending on their commute. Eligible parking is at a transit location or worksites. The only parking not eligible is at a residence. As of January 1, 2012, the parking cap is $240/month.
For example, an employee drives to a train station or bus park and ride lot to use transit. He needs to pay to park his car and to use transit. This employee could use up to $245/month pre-tax salary for transit and up to $245/month for parking. The two benefits are not an either/or option.
Can you do pre-tax transit if you're self-employed?
Pre-tax is for employees. The self-employed are not company employees, they own their businesses. Check with your tax professional on how transportation expenses are handled within your business. Most consultants use their transit costs as a business expense and deduct it. This is not part of the pre-tax transit benefit.
Is there a minimum number of participants to offer a pre-tax benefit?
No. The pre-tax benefit is open to every company. Employers are able to provide the pre-tax benefit if any employees use mass transit for their commute. Programs that provide the benefit may have some participation guidelines. You would want to explore that when visiting the third-party provider's websites if this impacts your employee program.
How do transit commuters take advantage of the pre-tax benefit?
Employees should ask their employer if the pre-tax transit benefit is available. Checking with the Human Resources, Payroll or Benefit areas within your company is a good place to start.
The benefit may be referred to as the "Commuter Tax Benefit." If they do not already have it as part of their benefits programs, ask if it can be added. You can only participate through your employer; it's the only way to access pre-tax salary.
How do employers participate?
Employers interested in providing the pre-tax benefit have options on how they administer the program. The programs offered are based on the same pre-tax guidelines.
Consider what you will give your employees when providing the benefit. You have the option of giving them their actual transit passes/tickets, vouchers or an electronic benefit card loaded with the payroll deductions. What you select determines your next steps.
Shop the programs and their fees. Passes and tickets may have you working with NJ TRANSIT directly (with no fees) or with the third-party administrators that offer the pass/ticket option. Vouchers and electronic benefit cards are offered by many of the third-party administrators. Please go to the employer link to learn more about the details of building a program within your company.
Payroll deductions will need to be set-up. This is when you capture what your employees need, the cost of their pass/tickets or the amount they need loaded on the electronic benefit cards.
Do you recommend a program?
NJ TRANSIT works with all the third-party providers. Some of them provide NJ TRANSIT passes and tickets, buying them from NJ TRANSIT and shipping directly to your employees.
NJ TRANSIT accepts the vouchers and electronic benefit cards offered by the third-party administrators as payment towards passes and tickets. They may be used at NJ TRANSIT ticket windows, ticket machines (electronic cards only) and through the Quik-Tik, a web-based home ticket delivery program.
NJ TRANSIT cannot recommend one program over another. How you decide to offer the benefit to your employees will guide you through the selection process.
NJ TRANSIT allows employers to purchase passes and tickets directly, saving on program administration costs. BusinessPass is the program serving employers. Employers selecting this program distribute the passes/tickets to their employees directly.
Is there a list of third-party providers and their programs?
Yes. Some of the programs offered in the New Jersey area:
- BusinessPass (NJ TRANSIT)
- Commuter Check, Wired Commute (Edenred)
- eTRAC (Benefit Resource Inc.)
- TotalBen LLC
- TranBen Ltd.
- RideECO (Delaware Valley Regional Planning Commission)
- TransitChek (TransitCenter Inc.)
- WageWorks Inc.
Go to their websites and learn about their programs. In addition to these programs, payroll service companies, like ADP, offer a transit pre-tax benefit option. You may want to search the web for "commuter tax benefit" or "pre-tax transit benefit" to see if others have joined the list.
Are there fees associated with the programs?
Fees vary depending on services offered. Explore the options with the third-party administrators.
The NJ TRANSIT program, BusinessPass, sells monthly passes and one-way tickets directly to the employer at face-value. There are no administrative or service fees.
What do you do if you have employees traveling on all different transit systems in the area?
The pre-tax transit benefit is open to everyone. It is a federal program. All the transit systems welcome the use of the benefit. It helps transit riders save on their commutes.
To administer a multi-system program, consider the third-party providers that offer passes/tickets from all transit systems or the vouchers and electronic benefit cards that are accepted by transit providers.
The BusinessPass offered by NJ TRANSIT only sells passes/ticket for the buses, trains and light rail systems NJ TRANSIT runs. For employers within New Jersey this is a viable program option.
Is there a minimum to participate in the NJ TRANSIT BusinessPass?
The NJ TRANSIT BusinessPass program was designed for bulk sales. To assist employers of all sizes in offering the pre-tax option, the program allows for smaller orders as well as the large bulk purchases.
BusinessPass orders need to be "more than two monthly passes" or 25 one-way tickets. Most employers make this threshold easily and appreciate the relaxed minimum so they may offer the benefit without any administrative fees.
Why do you need to place NJ TRANSIT BusinessPass orders by the 14th of the month?
NJ TRANSIT monthly passes are good for a calendar-month. Each month, a new pass is necessary. In order to get these passes to the employers for distribution, time is needed to produce and ship them. Every employee wants a pass before the beginning of the next month.
One-way tickets have no expiration dates. Orders for those tickets may be sent at any time.
Can BusinessPass be used for other than a pre-tax transit benefit?
Yes and it is. Many organizations use BusinessPass to purchase tickets for other than employees and/or the pre-tax benefit. Some use one-way tickets for their clients, customers, staff business travel, or other creative transportation solutions. Examples of how some customers have used BusinessPass services:
- Hotels purchase one-way tickets to have on-hand for guests to get in to NYC or Newark Airport.
- Employers use one-way tickets within their office to attend meetings at other locations, for convenience (i.e.: to go to NYC meetings).
- Companies give one-way tickets to customers to get them to their sales or at job fairs for candidates to come in for their interviews.
- Shelters purchase one-way tickets for their clients to help get them to appointments and other services.
- Hospitals use one-way tickets to get clients to their appointments/services, for volunteers and to help folks that arrive by ambulance and are well enough to be discharged but don't have a ride home.
- Travel agents buy one-way tickets for customers traveling to this area.
- Airlines buy one-way tickets to help customers get to other airports for flight options when needed.
- Social Agencies purchase monthly passes for clients attending work-related training and job-search activities.
- ...the list goes on with creative ways of solving transportation needs.
Is there someone at NJ TRANSIT to help employers understand the pre-tax and BusinessPass program options?
Yes, the NJ TRANSIT Sales & Employer Services staff will work with employers on the pre-tax benefit options, BusinessPass program, enrollment, initial orders, general transit and ticket information. They may be reached at 973-491-7600 or via email.
What about vanpools, are they eligible for the pre-tax benefit?
Yes, third-party vanpools are included in the pre-tax transit benefit. They are allowed to use the same amount, up to $245/month per employee. Third-party vanpools involve a contracted leased vehicle and an organized vanpool. Employees sharing a ride in someone's minivan are not an eligible vanpool.
Can tolls and gas be paid for with the pre-tax benefit?
No. The pre-tax benefit is strictly for commuting by mass transit and third-party vanpools. You cannot use the benefit to pay for E-Z Pass, a popular question.
There is an existing pre-tax parking benefit for those driving to work. Now through December 31, 2013, it is up to $245/month per employee. Explore the parking benefit option with the third-party administrators. Many of them offer parking options in their services.
Where else can I go to get more details on the benefit?
Click on the NJ TRANSIT links for Pre-Tax Benefits: