Certain New Jersey Employers Required to Provide Pre-Tax Transportation Fringe Benefits
Finding the right balance between compensation and benefits is essential to ensure a company can attract and retain qualified employees. For many New Jersey companies, this means offering benefits such as a 401(k) or retirement plan, medical, dental, and life insurance and, in some cases continuing training or education. What benefits are offered is typically decided by management and is limited to those with the most significant impact. However, effective March 1, 2020, New Jersey employers (with at least 20 employees) are required to offer pre-tax fringe transportation benefits. This means qualifying companies must allow employees to pay for qualifying benefits on a pre-tax basis and purchase items such as bus passes, rail tickets and parking passes for their daily commute. While a benefit to employees, it means employers will need to review benefit offerings to ensure compliance with the new law. To help clients, prospects, and others, Klatzkin has provided a summary of the key information below.
- Who is Required to Comply? New Jersey companies with at least 20 employees must offer a pre-tax fringe benefit program to all employees that are not part of a Collective Bargaining Agreement (CBA).
- How is an Employee Defined? According to the new law, anyone hired or employed by the company and reports to an assigned location to fulfill assigned duties. Note that independent contractors are not defined as an employee.
- What is a Pre-Tax Transportation Fringe Benefit? It permits employees to set aside wages on a pre-tax basis, which is available to pay for eligible expenses such as buying a monthly bus or rail pass, on-site parking, and more. It’s important to note, an employee’s pre-tax contributions can only reduce taxable wages to the monthly maximum, which is $270 per month for 2020.
- What are the Penalties for Noncompliance? New Jersey-based employers that fail to comply with the new regulations will be subject to a penalty between $100 to $250 for the initial violation. However, if a violation is uncovered, there is a 90-day grace period under which they can implement a program with no fine. If no program has been implemented after this period, they will be subject to a $250 penalty for each additional 30-day period.
Since the effective date for compliance was March 1, 2020, impacted New Jersey companies need to act now. If you have questions about the information outlined above or need assistance with business tax planning or compliance, Klatzkin can help. For additional information, call us at 609-890-9189 or click here to contact us. We look forward to speaking with you soon.