Commuter Tax Benefits
Save up to $900 on Your Commute
Governor Phil Murphy recently signed a bill into law requiring New Jersey employers of at least 20 employees to offer a pre-tax transportation fringe benefit to employees (who are not currently in a collective bargaining agreement) beginning March 1, 2020.
The Federal Government allows employees to set aside a certain portion of pre-tax wages, which can be used for your mass transit commuting costs and parking while reducing your federal taxable income. The Federal Government currently allows a pre-tax commuter benefit of $265 per month. That means you could save up to $900/year by not paying federal income tax on that salary.
Save Even More on Parking
If you need to pay for parking in order to make your transit connection, the parking fees can be funded with pre-tax dollars up to an additional $265 per month.
What Do You Need to Do?
Check with your employer to see if they already offer a commuter tax benefit. You may want to start with the Benefits Department, your Payroll contact or Human Resources Department. They will help you figure out if the benefit is already offered to employees. Keep in mind: the only way to access pre-tax salary is through your employer. Once you take home your paycheck, you have paid income tax on that salary. The pre-tax transit benefit is not a year-end deduction; it consists of payroll deductions throughout the year.
What Do Employers Need to Do?
To take advantage of these tax savings, your employer needs to opt-in to either the NJ TRANSIT Bulk Sales program or one of the programs offered by a third party provider, like Beniversal/eTRAC, Commuter Benefit Solutions, RideECO (Delaware Valley Regional Planning Commission), TotalBen, TranBen, or TransitChek by WageWorks. In addition to these programs, payroll service companies like ADP, offer a transit pre-tax benefit option. A common name for the benefit is "commuter tax benefit".
TaxFree commuter benefits can be structured as an employee-funded tax-free payroll deduction; as an employer-funded benefit; or the costs can be shared by employer and employee. The benefit can be delivered in the form of transit provider-specific passes or universally accepted vouchers and debit cards.
Let NJ TRANSIT help you through the process and provide the information you need to explore the options, programs and benefits of pre-tax transit. Contact the NJ TRANSIT Bulk Sales program at 973-491-7288, or contact any of our partner providers listed above.
- What is the pre-tax transit benefit?
The Internal Revenue Code allows employees to use pre-tax salary towards their mass transit commuting costs. It is IRS Code, section 132(f) Qualified Transportation Fringe.
- How much pre-tax salary can be used?
As of January 1, 2019, the transit cap is $265/month. With this new cap, you may use up to $3,180/year towards your mass transit commute without paying federal income tax on this salary.
- How does this save money?
Employees pay no federal income tax on the amount you set aside pre-tax for your mass transit commute, up to the cap of $265/month.
- Is the pre-tax benefit the same as a flexible spending plan?
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.
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. Pre-tax transit is under IRS code, Section 132(f), Qualified Transportation Fringe. It is not part of Section 125.
- Is this something that can be claimed on your taxes at the end of the year?
No. Payroll deductions are made throughout the year on a pre-tax basis, which reduces your taxable wages. Your savings come from 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. 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. This option is also capped at $265/month.
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 $265/month. For example, if an employer offers a $20/month transit subsidy as an incentive to reduce the number of cars parking at their facility, employees can use up to $245/month of pre-tax salary.
- 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 worksite. The only parking not eligible is at a residence. As of January 1, 2019, the parking cap is $265/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 $265/month pre-tax salary for transit **and** up to $265/month for parking.
- Is pre-tax transit available if you're self-employed?
Pre-tax is for employees. Check with your tax professional on how transportation expenses are handled within your business. For example, some consultants deduct their transit costs as a business expense. 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. As of March 1, 2020, New Jersey employers of at least 20 employees are required by law to offer a pre-tax transportation fringe benefit to employees who are not currently in a collective bargaining agreement.
- Do you recommend a 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 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 the NJ TRANSIT Mobile App (electronic cards only).
- What do you do if you have employees traveling on all different transit systems in the area?
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.
- Are there fees associated with the programs?
Fees vary depending on services offered. Explore the options with the third-party administrators.
NJ TRANSIT allows employers to purchase passes and tickets directly, saving on program administration costs. We sell monthly passes and one-way tickets directly to the employer at face-value, and there are no administrative or service fees.
- Is there a minimum for bulk orders from NJ TRANSIT?
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. 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.
- Is there a deadline to place bulk orders from NJ TRANSIT?
One-way tickets have no expiration dates. Orders for those tickets may be sent at any time. Orders for monthly passes must be placed by the 14th of the month to give NJ TRANSIT adequate time to produce and ship them to you.
- Are vanpools 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 $265/month per employee. Third-party vanpools involve a contracted leased vehicle and an organized vanpool. Employees sharing a ride in a personal vehicle are not an eligible vanpool.
- I use E-ZPass. Can my tolls be paid for with the pre-tax benefit? Can I pay for fuel with the pre-tax benefit?
No. The pre-tax benefit is strictly for commuting by mass transit and third-party vanpools.