Will NJ Employers Be Obligated to Ensure Federal Tax Break for Commuters?

New Jerseyans, like other Americans, can get a nice tax benefit for their commuting costs, but only if their employers sign up for it. State lawmakers want to make that a requirement

Credit: Mai Reitmeyer
NJ Transit commuters
The federal tax code offers what can be a sizable tax benefit to commuters to help offset transportation costs, and state lawmakers want to make sure New Jersey companies aren’t keeping workers from taking full advantage.

Legislation that was recently voted out of the state Senate would require most New Jersey companies to set up a system to allow their employees to use the federal tax benefit, which sets aside pre-tax wages to cover costs like train tickets and parking-lot fees.

Transportation advocates say the bill could deliver much-needed tax savings to the state’s commuters while also giving a boost to New Jersey Transit as more people may be encouraged to use the service if they’re getting a tax benefit. The measure is also being billed as a win for employers because it could end up reducing their portion of a worker’s payroll taxes. But the legislation isn’t getting unanimous support; concerns have been raised about forcing small companies to spend money to participate in the program.

Under the federal government’s current commuting tax benefit, commuters can put aside up to $260 in pre-tax wages each month to cover costs related to their daily trips to work. They include tickets for bus, train, subway and ferry services, as well vanpools and parking lots used for work. In most cases, the program allows commuters to use a dedicated credit card to pay their allowable pre-tax transportation costs, adding up to more than $3,000 a year.

Businesses with 20 employees or more

But the key to the program is getting employers to participate since it requires them to set aside the commuting dollars for their employees as a pre-tax fringe benefit, much like how companies provide employees with separate accounts to save money for healthcare costs.

It’s unclear how many New Jersey businesses currently participate in the program, but the Senate bill would require all businesses with 20 or more employees to do so. The measure also calls for NJ Transit and other state transportation agencies to conduct a marketing campaign to raise commuter awareness about the federal program.

“This would offer valuable savings to many New Jerseyans struggling to make ends meet,” said Senate Majority Leader Loretta Weinberg (D-Bergen).

Janna Chernetz, director of New Jersey policy for the Tri-State Transportation Campaign
Janna Chernetz, director of New Jersey policy for the Tri-State Transportation Campaign, said monthly costs for NJ Transit commuters can easily top $400. That would make the commuter tax benefit one of the federal programs that New Jersey residents could take full advantage of.

“This bill would allow commuters to save 30 to 40 cents on a dollar,” Chernetz said while testifying last week before the Senate Budget and Appropriations Committee.

It would also complement NJ Transit’s recent decision to offer its train customers a temporary, 10 percent fare discount because work to install Positive Train Control safety equipment has led to a series of service changes and disruptions, she said.

‘NJ Transit riders need something’

“Right now, we know that NJ Transit riders need something, they need relief,” Chernetz said.

Employers in New Jersey could also see some savings by offering the tax benefit because it reduces the share of an employee’s compensation that is subject to federal payroll taxes, Chernetz said.

There would be no impact on state tax collections because the bill would not apply to any taxes levied at the state level.

Ron Sabol, the state legislative director for the International Association of Sheet Metal, Air, Rail, and Transportation Workers labor union, said the measure could lead more commuters to use mass transit since buying tickets will have the effect of lowering their federal taxable income. That could help out NJ Transit, which relies more heavily on customer fares than many other agencies to balance its operating budget. It could also boost sales for private bus companies that are popular among New Jersey commuters, he said.

“This is great to be able to offer it to people who didn’t have it offered before,” Sabol said.

Despite the testimony in favor of the bill, Sen. Steve Oroho (R-Sussex) raised concerns about establishing a mandatory statewide requirement. The current draft of the legislation calls for monetary penalties to be levied when companies fail to offer their employees a chance to receive the federal tax benefit.
But some companies in more rural parts of the state would have to take on a cost to administer the commuting tax benefit for their employees even if the employees don’t really have an opportunity to use mass transit or some of the other services that are eligible for the tax savings, Oroho said.

“The issue is the mandate,” he said.

The measure was also opposed by the New Jersey Business & Industry Association and other groups for similar reasons, but it ultimately passed the budget committee and the full Senate last week. It has yet to move in the Assembly.