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New York City Enacts Law Requiring Employers To Offer Pre-Tax Transit Benefits

  • By: David Rich
  • Published: February 29, 2016

Effective January 1, 2016, a new statute requires non-governmental employers with 20 or more full-time employees in New York City to offer full-time employees the opportunity to use pre-tax earnings to purchase qualified transportation fringe benefits, other than qualified parking, in accordance with federal law.   Also effective January 1, 2016, under federal law, an employee may elect to use a maximum of $255 of pre-tax income a month to pay for qualifying transportation expenses (such as transit passes and many commuter vans).

Specifically, on October 20, 2014, New York City Mayor Bill de Blasio signed, into law, Local Law 53 of 2014 (“Local Law 53,” or the “new Law”).  On October 7, 2014, the New York City Council, by a vote of 49 to 0, unanimously had approved Local Law 53.  The new Law is codified as N.Y.C. Admin. Code § 20-926.

Background

Section 132(a) and 132(f) of the Internal Revenue Code (the “IRC”), 26 U.S.C. § 132(a), 132(f), excludes “qualified transportation fringe” benefits from an employee’s gross income, subject to certain limits.  Under federal law, this exclusion is available only if an employee voluntarily offers a transit benefit.

The transportation fringe benefit can only be provided to employees.  As a result, partners, independent contractors, and two percent shareholders of S-corporations are not eligible for the transportation fringe benefit.  26 C.F.R. § 1.132-9 (Question 24 and Answer 24).

Qualified transportation fringe benefits include transit passes, qualified parking, and the cost of transportation in a commuter highway vehicle between the employee’s residence and the employee’s workplace.  IRC § 132(f)(1), 26 U.S.C. § 132(f)(1); 26 C.F.R. § 1.132-9 (Questions 1 – 2 and Answers 1 – 2).  For 2016, an employee may elect to use a maximum of $255 of pre-tax income a month to pay for transit passes, qualified parking, and the cost of transportation in a commuter highway vehicle between home and work.

The New Law

Effective January 1, 2016, Local Law 53 requires private employers with 20 or more full-time employees in New York City to offer full-time employees the opportunity to use pre-tax earnings to pay for transit passes or the cost of transportation in a commuter highway vehicle between home and work.  For purposes of the new Law, ” ‘full time employees’ ” are employees who have worked an average of thirty or more hours per week for the most recent four weeks.  N.Y.C. Admin. Code § 20-926(a); see N.Y. City Department of Consumer Affairs, Commuter Benefits Law FAQs (updated Feb. 22, 2016).

Once an employee becomes eligible for pre-tax commuter benefits, he or she remains eligible throughout his or her employment with the employer, even if the employer’s work force is reduced to fewer than 20 full-time employees.  6 R.C.N.Y. § 8-04(b).

Federal, state, and local governmental employers are not subject to Local Law 53.  N.Y.C. Admin. Code § 20-926(c).  Further, the new Law does not apply where a collective bargaining agreement (a “CBA”) exists between any group of employees and an employer, except where the number of full-time employees not covered by the CBA is 20 or more, in which case those full-time employees not covered by the CBA are eligible for pre-tax commuter benefits.  Id. § 20-926(c).

Among the types of transportation costs which, under Local Law 53, employees may pay with pre-tax income are (i) transit passes, such as MetroCards, that can be used on public or privately owned mass transit and (ii) commuter vans with a seating capacity of six or more passengers.  N.Y. City Department of Consumer Affairs, Commuter Benefits Law FAQs.

The New York City Department of Consumer Affairs (the “City Department of Consumer Affairs” or the “NYCDCA”) enforces Local Law 53.  The new Law provides employers with a six-month grace period — from January 1, 2016 through June 30, 2016 — before the NYCDCA is authorized to seek civil penalties against employers which violate the new Law.

Beginning on July 1, 2016, any employer found to have violated Local Law 53 for the first time will be liable for a civil penalty, payable to New York City, of $100 to $250.  N.Y.C. Admin. Code § 20-926(b).  However, an employer will have 90 days to cure (correct) the employer’s first violation before a civil penalty will be imposed.  N.Y.C. Admin. Code § 20-926(b).

After the 90-day period to cure expires, every 30 day period in which the employer fails to offer full-time employees the opportunity to use pre-tax earnings to purchase qualified transportation fringe benefits, other than qualified parking, will constitute a subsequent violation of the new Law.  N.Y.C. Admin. Code § 20-926(b).  A civil penalty of $250 will be imposed on the employer for each such subsequent violation.  Id. § 20-926(b).

No single employer will suffer more than one civil penalty under the new Law in any 30 day period.  N.Y.C. Admin. Code § 20-926(b).

Local Law 53 does not create a private cause of action by an employee against an employer for violating the new Law.

Take-Aways for Employers

Local Law 53 requires businesses with 20 or more full-time employees in New York City to establish a qualified transportation benefit program.  Employers in New York City must determine whether they are subject to the new Law.

Employers who are subject to Local Law 53 must determine whether their present employee benefit plans and programs, if any, afford full-time employees the opportunity to use pre-tax earnings to purchase qualified transportation fringe benefits, other than qualified parking, in accordance with federal law.

If employers’ current plans and programs do not afford full-time employees the opportunity to use pre-tax earnings to purchase qualified transportation fringe benefits, then the employers must establish or amend their plans and programs, effective January 1, 2016, to afford full-time employees that opportunity.

A cynic might observe that, if an employer is willing to endure civil penalties of $250 per month, or $3,000 per year, the employer can completely forego complying with the new Law.

If your company needs assistance or guidance on a labor or employment law issue and your company is located in the New York City area, call Attorney David S. Rich at (347) 941-0760.

David Rich

About the Author David S. Rich is the founding member of the Law Offices of David S. Rich, LLC,
a New York Employment and Business Litigation Law Firm, in New
York City and in Englewood Cliffs, New Jersey...Read more