Robert Reynolds, CPA, MST
Potential Pitfalls/Penalties Best Addressed by Informed Specialists
To decipher New York City’s soon-to-be-enacted Commuter Benefit Law, the professionals at WithumSmith+Brown (Withum) are encouraging employees and employers alike to consult with knowledgeable tax-preparation specialists in order to avoid potential pitfalls – and penalties. The audit, tax and advisory firm is currently assisting individuals, for-profit businesses and non-profit organizations prepare for when the new provision takes effect as of January 1, 2016.
As part of the 2015-2016 budget, the provision requires businesses with 20 or more full-time, non-union employees operating in New York City to offer a commuter benefit. Signed by Mayor Bill de Blasio, the law states individuals employed by for- and non-profit entities will have the opportunity to utilize pre-tax income to pay for their commute. Under federal tax law, employees can currently deduct up to $130 a month from pre-tax income to pay for qualified transportation.
“A publication recently issued by The Department of Consumer Affairs (DCA) details the new commuter benefit law requirements, however – just like anything that is new – it also has raised some questions that are best answered by a professional, well-informed tax preparer,” said Withum’s Robert Reynolds, CPA, MST, a member of the tax services team. “Certain businesses, including those out-of-state with regular or occasional New York City-based staff, must offer this benefit to qualified employees otherwise they risk being penalized after the grace period expires.”
Reynolds notes a full-time employee is defined as an individual who works an average of 30 hours or more per week in the most recent four-week timeframe, any portion of which was in New York City. Under the law, covered employers must offer commuter benefits to existing full-time employees beginning January 1, 2016 or within four weeks after an employee begins full-time work, whichever is later.
In addition, the law gives employers a six-month grace period – from January 1 to July 1 – to begin offering a commuter benefit program. Employers will not be subject to penalties for violations that take place before July 1. The law also gives employers 90 days to correct a violation before the DCA is authorized to seek penalties as well.
The following exemptions apply to:
- Employees of the federal government, New York State and New York City, including any office, department, independent agency, authority, institution, association, society, or other body of the state, including the legislature and the judiciary, are not required to be offered these benefits
- Employers that are not required to pay federal, state, and City payroll taxes are not required to offer these benefits
- Employees covered by a collective bargaining agreement
“Employers must keep records for two years that demonstrate each eligible full-time employee was offered the opportunity to use pre-tax income to purchase transit benefits and whether the employee accepted or declined the offer,” explained Reynolds, who added businesses may use the model form available on the DCA website nyc.gov/commuterbenefits to document compliance for recordkeeping purposes.
According to the provision, covered transit options include NYC regional mass transit services, including MTA subway and bus, LIRR, Amtrak, New Jersey Transit, and Metro-North, eligible ferry and water-taxi services, eligible vanpool services, eligible commuter bus services and Access-A-Ride. Transit that is not covered by the law includes parking expenses and bicycling expenses, including CitiBikes. Under federal tax law, employees cannot use pre-tax income for the qualified bicycle commuting reimbursement benefit, and bicycle rental fees are not qualified transportation fringe benefits.
Established in 1974, Withum is an accounting, audit, tax and advisory firm committed to providing quality services and innovative solutions to businesses, non-profits, individuals and communities. The firm, which has a New York City office and 13 other locations, provides clients with the benefits of a larger organization without compromising the attention and personal service associated with a local business. As one of the nation’s 30 largest accounting and consulting firms, Withum’s annual revenue is approximately $105 million. The firm also is a member of HLB International, a worldwide network of independent professional accounting firms and business advisors committed to assisting clients build and expand globally.