United States: NYC Law Requiring Pre-Tax Transit Benefits Now In Effect

Under the recently-enacted Affordable Transit Act (the ATA), covered New York City employers are now required to offer pre-tax transit benefits to their full-time employees. The New York City Department of Consumer Affairs (the DCA), which currently has administrative authority over the ATA, notes that the law will reduce payroll taxes for employers and reduce employees' monthly expenses. Although the DCA has stated that it will not enforce the ATA until July 1, 2016, the law is now in effect and covered employers should take action to ensure that they are in compliance.

Qualified Transit Benefits

Under the ATA and rules promulgated by the DCA, covered employers must offer full-time employees the opportunity to use pre-tax earnings to purchase qualified transportation fringe benefits, in accordance with federal law. "Qualified transportation fringe benefits" is defined under Section 132(f) of the Internal Revenue Code to include transit passes and the cost of transportation in a commuter highway vehicle between home and work. Bicycle commuting costs, including the CitiBike program, do not qualify under the law. While federal law also includes "qualified parking" in its definition of qualified transportation fringe benefits, New York City employers are not required to offer such benefits under the ATA. The 2016 monthly limit for qualified transportation benefits is $255 for transit passes and commuter highway vehicle costs.

According to the DCA's website, a covered employer may use a third-party vendor to satisfy its obligation of providing qualified transit benefits, and such third-party vendor may charge fees for their services. The DCA reports that fees vary depending on the vendor, but typically range from 3% to 5% of the benefit received per employee, or $4 to $6 per participant, per month. The DCA also states on its website that employers may not deduct these administrative fees from employee's wages.

In lieu of offering pre-tax transit benefits, an employer may provide, at its own expense, a transit pass (or similar form of payment) for mass transit transportation. If the value of the transit pass is less than the maximum dollar amount allowed under federal law for pre-tax purchases of qualified transportation fringe benefits (currently $255 per month), the employer must offer employees the opportunity to apply the difference to pre-tax earnings to purchase transportation fringe benefits.

Recordkeeping Requirements

For a period of two years, employers must retain records demonstrating:

  1. that each eligible employee was offered the opportunity to use pre-tax earnings to purchase transportation fringe benefits, or was offered a transit pass at the employer's expense, and
  2. whether the employee accepted or declined the offer.

The DCA has stated that the offer must be made in writing. Employers can comply with this requirement by using a template form available here on the DCA's website.

Covered Employees and Employers

Eligible employees are those who work on average 30 or more hours per week for a covered employer (employers should calculate the average hours worked in the most recent four weeks). Covered employers have 20 or more full-time employees working in New York City.

Additionally, temporary help firms that supply 20 or more full-time employees to another organization in New York City must offer pre-tax transit benefits to their employees, regardless of the other organization's size. The law does not apply to federal, state, and local governments or to employers exempt from federal, state, and city payroll taxes. Unionized employers with a collective bargaining agreement (CBA) in place are not required to provide the pre-tax transit benefits to employees covered under the CBA. However, if a unionized employer has 20 or more full-time employees who are not covered under a CBA, the employer must offer the benefit to those uncovered employees. Covered employers may request an exemption from the ATA if offering pre-tax transit benefits would be "impracticable and create a severe financial hardship."

Civil Penalties

Employers who fail to comply with the ATA's requirements are subject to a civil penalty between $100 and $250 for a first violation. Employers have a 90-day window to cure a violation before the DCA will impose the penalty. After the window closes, every 30-day period in which the employer fails to offer the requisite benefit constitutes a subsequent violation, which is subject to a $250 civil penalty.

Bottom Line

Employers with 20 or more full-time employees working in New York City should review their employee benefit plans to ensure that they offer all full-time employees the opportunity to use pre-tax earnings to purchase qualified transportation fringe benefits. Employers must keep records showing their compliance with this requirement for two years. However, they have until July 1, 2016 before the DCA will impose civil penalties for non-compliance.

After July 1, 2016, employers will have an opportunity to cure any violation of the ATA within 90 days before any penalty may be imposed. Employers should also note that Mayor De Blasio recently established the Office of Labor Standards, which will be responsible for enforcing the ATA. Accordingly, the current ATA rules may change.

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.

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