New York City Pre-Tax Transit Benefits Are Now Mandatory
Starting this January, a new law requires New York City employers with 20 or more full-time employees in the five boroughs to offer them pre-tax transit benefits.
When Mayor De Blasio mandated that NYC employers sponsor a transit program, he did so to encourage all NYC employers to offer the benefit and to help both employees and employers save on taxes. Employers with less than 20 full time employees in NYC can participate on a voluntary basis and offer this tax favored benefit to their employees.
The new law (Local Law 53), a Qualified Transportation Plan, allows employees to pay on a pre-tax basis for all their commuting expenses on public transportation – subway, bus, LIRR, NJ Transit, etc… A pre-tax parking benefit can also be added as an additional benefit.
And just like other pre-tax employee benefits (for example, Health FSA), wages allocated to an employee’s transit or parking account are not subject to Federal, State, City or FICA taxes and the employer saves on their half of FICA tax. The Internal Revenue Service monthly pre-tax maximum is $255 for transit and an additional $255 for parking. This means an employer with 20 employees electing the monthly IRS maximum will save $4,682 in FICA Tax and each employee would save approximately $1,300 in taxes each year.
This new law will be enforced by The Department of Consumer Affairs (DCA) and after July 1st, 2016, employers will have 90 days to cure any violations before the DCA imposes penalties for noncompliance.
Luckily, this benefit is simple to administer and offering benefit cards will encourage participation and provide convenience to both the employer and employee.