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Your New Jersey commute just got a little more bearable. With a law recently signed by Governor Phil Murphy, the Garden State becomes the first to require employers to offer pre-tax transportation benefits. Before being signed by the governor on March 1, Senate Bill 1567 was overwhelmingly supported by both houses of the state legislature.
The pioneering state law follows a similar measure enacted by New York City, first reported by Namely back in 2015. Since then, the District of Columbia and the cities of San Francisco and Seattle have followed suit.
The law requires businesses with 20 or more employees to offer pre-tax commuter benefits consistent with what's allowed under the federal tax code. Unlike similar measures, the law does not exempt nonprofit nor public employees. On the other hand, federal offices in the state are excluded from the mandate.
Surprisingly, the law's requirements go into effect immediately. That said, they will be "inoperable" or unenforced by state officials until at least March 1, 2020. The New Jersey Commission of Labor and Workforce Development is expected to release additional guidance and enforcement details in the coming months.
No, Section 132 it isn't a new exit on the turnpike. This part of the tax code covers de minimis fringe benefits, qualified moving expenses, and even office snacks. But for the purpose of this article, let's focus on the part of Section 132 that covers qualified transportation benefits.
Section 132(f) is divided into three parts. The first part addresses transportation in a "highway vehicle" between the employee's residence and place of employment. The second part covers transit passes, like MetroCards or train tickets. Finally, the third part covers employee parking in a qualified lot. Ultimately, this section outlines is how much pre-tax money you can allocate to the three commuter situations described above.
So what does this look like for a normal check? In 2019, the monthly limit for pre-tax transit andparking was $265 each. That is a pre-tax benefit of up to $3,180 (or $6,360 if you max out both).
If an employee is paid $2,000 semi-monthly and they deduct the maximum amount for parking and transit per pay period, they would have a semi-monthly taxable gross of $1,735 ($2,000 - $265). The employee is then taxed on $1,735 per pay period because they devoted $265 pre-tax dollars.
Whether employees commute by train or car, using pre-tax commuter plans is a great way for them to save money on something they do nearly every day. Legal mandates aside, it seems like employers are getting the idea—Namely's own data suggests that almost half of U.S. employers offer pre-tax transportation benefits. If other states follow New Jersey's lead, adoption might just hit the fast track.