New York City is ringing in the new year in typical fashion, by imposing new obligations upon employers located in the City. The Commuter Benefits Law requires private employers which employ 20 or more full-time non-union employees to offer all full-time employees who work in NYC the opportunity to use pre-tax income to purchase specified transportation benefits.
The law enables employees to use pre-tax income to pay for a transit pass for transportation on mass transit or commuter vans, including the Metropolitan Transportation Authority subway and bus services, Long Island Railroad, Amtrak, New Jersey Transit and Metro-North Railroad, as well as eligible ferries, water taxis, vanpools, commuter buses and paratransit providers. Parking expenses are not covered. The employer must offer each eligible employee in writing the opportunity to use pre-tax income to purchase transportation benefits. The employer must extend that offer as of January 1, 2016, and thereafter it must do so for new hires within four weeks after the new employees begin full-time work. The NYC Department of Consumer Affairs (DCA), which will enforce the law, has issued a template form which can be provided to employees. A link to the NYC Form is provided for your convenience here. The employer must provide enrollment materials to its employees. The employee is permitted to advise as to the amount he or she chooses to deduct on a monthly basis, up to a maximum of $130. Employers are required to maintain records reflecting their compliance with the law.
Many employers already provide transit passes to employees. An employer which does so can continue its practice. However, if the value of the employer-provided transit pass is less than the maximum dollar amount allowed under federal law for pre-tax purchases of qualified transportation fringe benefits, then the employer must offer employees the opportunity to make up the difference in a pre-tax payroll deduction.
As an alternative, the employer can provide cash reimbursements for transit passes purchased by employees provided the reimbursements are tax-free to employees. However, the IRS has imposed new restrictions on employers providing qualified transportation fringe benefits in the form of cash reimbursement in geographic areas where terminal-restricted debit cards are readily available. It will be necessary to consult a tax professional to ascertain the applicable requirements and restrictions.
Employers may operate their commuter benefits program in-house or select from authorized third-party providers. It is anticipated that many employers will chose the latter given the need to provide the benefits in pre-tax dollars.
To ease into the new commuter benefit era, employers have been afforded a six month grace period, or until July 1, 2016, during which time DCA will not issue any penalties for violations. Even after July 1, 2016, employers will be given 90 days to cure before penalties will be assessed. The penalty is $250 for a first violation, with additional $250 fines for each subsequent 30 day period of non-compliance.
An employer can seek exemption from the Commuter Benefits Law by making a compelling presentation that compliance would cause significant harm to the employer's business. It is anticipated that DCA will not be liberal in granting exemptions.
One notable provision of the law requires employers to continue providing benefits to eligible employees even if the covered workforce is reduced to fewer than 20 full-time employees.
A link to the DCA FAQ page is provided here. The FAQ identifies authorized third-party providers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.