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 $280 per month. That means you could save up to $900/year by not paying federal income tax on that salary.
Governor Phil Murphy 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.
Using the pretax option, employers and employees save on Federal taxes and F.I.C.A. and the business costs for Pension, Unemployment, Workers Compensation and Disability Insurance. In addition, the business costs associated with administering the program are tax deductible as business expenses. The amount an employee receives or deducts, up to the maximum, is not subject to federal income tax.
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 $280 per month.
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.
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.
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, or as an employer-funded benefit, completely or partially subsidizing the purchase of the employee monthly transit pass. It is tax free to the employee and tax deductible to the employer. 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.