Offering Pre-Tax Transit Benefits is no Longer Optional for New York City Employers
New York City’s Affordable Transit Act, which takes effect on January 1, 2016, will require most employers with 20 or more full-time employees to allow employees to apply pre-tax earnings toward qualified commuting expenses. The new law, which is administered in accordance with rules established by the Department of Consumer Affairs, provides that full-time employees may exclude transit costs from their gross taxable income up to the maximum amount permitted under federal income tax laws.
The law defines “full-time employee” as an employee who has worked an average of 30 or more hours per week during the most recent four-week period. Further, an employer’s total number of full-time employees is determined by calculating the average number of full-time employees who have worked for the employer at all locations within New York City during the most recent consecutive three-month period. Notably, once an employee becomes eligible for benefits under the law, the employee remains eligible for the duration of his or her employment regardless of whether the employer falls below the 20-employee threshold.
Qualified transportation fringe benefits covered under the law include those specified in section 132(f) of the Internal Revenue Code, such as mass transit passes and expenses associated with commuter highway vehicles and bicycle commuting, but do not include qualified parking. The law provides penalties of $100 to $250 for an initial violation that is not cured within 90 days. After the expiration of the 90-day cure period, employers are subject to penalties of $250 for each 30-day period in which they remain in non-compliance.
The law also requires employers to maintain records for two years sufficient to establish that all employees eligible for fringe transportation benefits were offered the opportunity to take advantage of such benefits and documenting whether or not they elected to receive them. The Department of Consumer Affairs provides a form on its website that employers may use to document compliance.
While the law imposes new obligations on employers that do not already offer these benefits, it also provides them with certain tax advantages in offering these benefits. Qualifying employers that are not already in compliance should move quickly to ensure their payroll and benefit departments will be ready to properly process any new employee payroll elections by January first.
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