Mandatory Municipal Commuter Benefit Ordinances
Some cities and regional areas have passed mandatory commuter benefit ordinances whereby employers fitting certain criteria must offer pretax commuter benefit programs.
The IRS (Rev. Rul. 2014-32) states that employer-provided transit benefit programs cannot include cash reimbursement.
Employers who offer commuter reimbursements via cash or payroll deposits are non-compliant and putting their organization at risk for back taxes and penalties.
Reimbursements under a Bicycle Commuter Tax Benefit program are considered taxable as income to the employee. The provisions of the Tax Cut and Jobs Act related to the Bicycle Commuter Tax Benefit expire in December 31, 2025.
Employers with existing commuter benefits should consider reviewing their programs to ensure compliance with municipal ordinances. TRI-AD continues to monitor various sources of information and will help you stay compliant and protect you from IRS penalties and back taxes.
NEW YORK CITY
NYC’s Commuter Benefits Law took effect on January 1, 2016. The New York City Transit Ordinance, also known as INT. No. 295-A and Local Law 53, requires New York City for-profit and non-profit employers, located in the five boroughs (Manhattan, Brooklyn, the Bronx, Queens, and Staten Island), with 20 or more full-time employees to offer the pretax commuter benefit for transit. NYC employers DO NOT have to offer Parking Benefits. The law defines a full-time employee as someone who works on average 30 hours or more per week for an employer. If employees are commuting from the suburbs to an office in one of the five boroughs, they are eligible for the benefit. The Department of Consumer Affairs (DCA) enforces the law and coordinates the City’s public education and outreach campaign to help employers and employees know their responsibilities and rights when it comes to commuter benefits.
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The City of Seattle passed a Commuter Benefits Ordinance, which became effective on January 1, 2020.
Businesses and tax-exempt organizations with 20 or more employees will be required to offer their employees the opportunity to make a monthly pretax payroll deduction for transit or vanpool expenses. Any company found in violation of the ordinance after January 1, 2020 will have 90 days to comply with the ordinance before any penalties are imposed. There is a $500 per-month, per-employer fine for failure to comply. Eligible employees must work an average of 10 hours or more per week. Employees must work within the city of Seattle to qualify for the benefit, however; they are not required to be residents of the city of Seattle.
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SAN FRANCISCO BAY AREA
The San Francisco Bay Area Commuter Benefits Program, launched on March 26, 2014, requires all employers, whether a private, public or non-profit entity, with 50 or more full-time employees within the jurisdiction * of the Bay Area Air Quality Management District to offer commuter benefits to their employees. This program is intended to reduce air pollution and traffic congestion by decreasing single-occupant commute trips and provide tax saving for employees and employers. This program considers a “full-time employee” as an employee who normally works 30 or more hours per week. Employers subject to the program are required by law to register via the program website, select a commuter benefit option, and offer the benefit to their employees.
Option 1: PreTax Benefit Election: The employer allows employees to exclude their transit or vanpool costs from taxable income, to the maximum extent permitted by federal law (see current IRS tax code for any updates or changes). This option can reduce payroll and/or income taxes for both employers and employees.
Option 2: Employer-provided Subsidy: Employer-provided transit or vanpool subsidy (or transit pass) which covers the monthly cost of the employee’s commute (at least $75 per month).
Option 3: Employer-provided Transit: The employer provides a free or low-cost bus, shuttle, or vanpool service for employees.
Option 4: Alternative Commuter Benefit: The employer provides an alternative commuter benefit that is as effective as the other three options above in reducing single-occupant vehicle trips and/or vehicle emissions. This option provides a means to promote the use of alternative commute modes that are not directly addressed in Options 1, 2 or 3, such as carpooling, walking, telecommuting, compressed work week schedules, or the use of electric vehicles by employees.
Employer Guide & Employee Definitions
* The jurisdiction includes all of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, and Santa Clara counties, as well as the western portion of Solano County (including Fairfield and points west) and the southern portion of Sonoma County (including Windsor and points south). Map
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Penalties and fines for non-compliance with Washington, D.C.’s law requiring D.C. employers to offer commuter benefits to their D.C. employees took effect on November 14, 2019. The law, which became effective on January 1, 2016, requires employers with at least 20 employees in D.C. to offer commuter benefits to their covered employees. An employee is covered by the law if the employee:
1. Spends at least 50 percent of his or her working time in D.C.; or
2. Is based in the District of Columbia and performs a substantial amount of work in D.C. and less than 50 percent in any other state. Under the law and final rules, issued on August 16, 2019, covered employers must provide covered employees with at least one of the following three types of commuter benefits:
- An employee-paid pretax benefit: This allows employees to elect to set aside up to the IRS-determined maximum from their paycheck each month for transportation in a commuter highway vehicle, a transit pass, or, beginning in 2026, commuter bicycling costs.
- An employer-paid direct benefit: The employer, at the employee’s election, may supply a transit pass or may reimburse the employee for vanpool costs. An employer may provide this commuter benefit with passes, vouchers, SmarTrip® cards, or employee reimbursements.
- An employer-provided transportation service: This service is at no cost to the employee and may include transportation such as a shuttle, vanpool, or bus operated by or for the employer.
A D.C. employer that fails to offer at least one of the above options is subject to penalties and fines. For each month that a covered employer is non-compliant, it may be fined $100 per covered employee for the first offense, $200 per covered employee for the second offense, $400 per covered employee for the third offense, and $800 per covered employee for any subsequent offenses.
Notice of Final Rulemaking – Transit Benefit Programs The final rules contain requirements for employers including:
- Employers must notify covered employees of the available commuter benefits and provide a contact for obtaining additional information about the benefits.
- Employers must explain how to apply for and receive commuter benefits and how to submit a complaint to the D.C. Department of Employment Services. The methods of notification include using any commercially appropriate means, such as email (including internal documents like memos, newsletters, or bulletins) or conventional or electronic bulletin boards.
- Employers must provide covered employees with “commuter benefits documents” as part of the employee benefits package or with the Notice of Hire form required under D.C. law.
- Employers should keep records related to commuter benefits for a minimum of three years.
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BERKLEY AND RICHMOND, CALIFORNIA
The City of Berkeley transit benefit ordinance, TRACC ordinance, has been in effect since 2009. It requires all employers with 10 or more employees either based in Berkeley, or with offices/outlets located here, to offer a commuter benefit program. This includes part-time employees working an average of 10 hours per week or more. The program can be either, 1) a pretax plan that allows employees to exclude transit, or vanpool expenses from taxable wages and compensation as allowed by federal tax law (this option saves employees income taxes, while saving employers payroll taxes), 2) a transit subsidy equivalent to the value of an AC Transit regular (local) monthly pass, or 3) an employer-provided shuttle service.
Effective December 18, 2009, Chapter 9.62 of the City of Richmond Municipal Code mandates employers with ten or more employees to implement a Commuter Benefits Program. This ordinance requires all registered businesses in Richmond that have ten (10) or more employees who work an average of at least ten (10) hours per week to offer one of the following:
Option 1: A Pre-Tax Election: A program, consistent with Internal Revenue Code 132(f), allowing employees to elect to exclude from taxable wages and compensation, employee commuting cost incurred for transit passes, vanpool charges or bicycle commuting, up to the maximum level allowed by federal tax law, currently $230 per month for transit and vanpool and $20 per month of bicycles.
Option 2: Employer Paid Benefit: A program whereby the employer supplies a transit pass or reimbursement for equivalent vanpool charges at least equal in value to the purchase price of the adult monthly transit pass for the local transit agency system(s) requested by each employee to complete the trip to the workplace.
Option 3: Employer Provided Transit: Transportation furnished by the employer at no cost to the employee in a vanpool, bus or similar multi-passenger vehicle operated by or for the employer.
Option 4: An alternative commuter benefit which must be pre-approved by the City of Richmond.
If business has 50+ employees in the City of Richmond and/or across all sites in the Bay Area, the employer must register with the Bay Area Commuter Benefits Program administered by the Bay Area Air Quality Management District and Metropolitan Transportation Commission.
Commuter Benefits Compliance Guide.
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All New Jersey employers with at least 20 employees to offer a pretax transportation fringe benefit to employees (who are not currently in a collective bargaining agreement) beginning March 1, 2020. Please see: SB 1567 (New Jersey Legislature, March 1, 2019).
Employers should have implemented the program by March 1, 2020, or the effective date of New Jersey Department of Labor and Workforce regulations, whichever occurs first.
An “employee” is anyone hired or employed by the employer and who reports to the employer’s work location (this follows the definition under the state’s unemployment compensation law). Employers that fail to comply with the law are subject to a penalty of between $100 to $250 for the first violation.
Employers will have 90 days from the date of the violation before the penalty is levied to offer the pretax transportation fringe benefit program. If, after the 90-day cure period, the employer does not adopt a pretax transportation fringe benefit, it will be subject to a $250 penalty for each additional 30-day period in which an employer fails to offer the benefit.
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LOS ANGELES, CALIFORNIA
The City of Los Angeles is expected to pass a mandatory commuter ordinance. We will add information here when details are available.
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The City of Philadelphia, PA enacted a Commuter Benefits Law which took effect on December 31, 2022.
Effective December 31, 2022, the ordinance requires employers with 50 or more covered employees to offer a commuter benefit program. A covered employee is any person who works an average of 30 hours or more per week for compensation in Philadelphia for the same employer within the past 12 months.
Philadelphia employers must provide at least one of the following commuter benefits:
Election of a pretax payroll deduction for a) fare instrument (e.g., fare card, pass, or token) or transportation in a commuter highway vehicle if such transportation is for travel between home and the workplace and meets certain requirements; or b) a qualified bicycle expense (purchase, maintenance, repair, and storage expenses relating to bicycle commuting); or
An employer-paid benefit whereby the employer supplies a fare instrument for covered employees; or Any combination of the two.
Commuters can begin using the benefit in January 2023. The new law will enable workers to use pretax income to cover commuting costs. Organizations that adopt a new commuter plan will also enjoy some financial benefits, as payroll taxes are reduced when employees put pre-tax funds into a commuter plan.
The city’s commuter benefit dollar amounts are the same as Federal commuter amounts, including adjustments for the cost of living. In 2022, the Federal law allows employees to use up to $280 per month in pretax dollars for commuter benefits. This amount will more than likely increase in 2023 due to the cost-of-living adjustments (COLAs), which will be published by the IRS later this year. Under federal law, the $20 monthly bicycle reimbursement benefit is currently taxable to the employee, however, the employer may deduct reimbursements to employees on its business tax return.
Employers who fail to comply could face penalties.
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TRI-AD and our Associates’ suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice and TRI-AD may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state or local; and/or its application to the clients’ business activities.