New Jersey Commuter Benefit Mandate
New Legislation Would Relieve Non-Profits of Unintended Consequences of NJ Law Requiring Employers to Offer Pre-Tax Commuter Benefits
Updated June 14, 2019
New legislation has been introduced that would help 501(c)(3) non-profits avoid unintended consequences of a new commuter benefits law that could end up subjecting certain non-profit employers to a 21% corporate tax.
S-3838 (Bucco)/A-5472 (Bucco) would exempt 501(c)(3) employers from P.L. 2019, c. 38, a new law which, when it takes effect, will require employers of 20 or more to offer pre-tax transportation fringe benefits to their employees. Employers will be required to offer employees the opportunity to use pre-tax payroll deductions for commuter transportation such as train tickets, car and van pools, park-and-ride, and other alternatives to single-occupant cars. The law is currently inoperative until 365 days from enactment (March 1) or the effective date of any implementing regulations, whichever comes first.
By providing employees with a chance to use pre-tax dollars, the new state law is designed to encourage cleaner forms of commuting while reducing taxes for the employee and reducing payroll taxes for employers. Unfortunately, because of the federal tax law, this will end up subjecting non-profit employers to a 21% corporate tax on the commuter benefits provided.
Section 512(a)(7) of the federal tax law commonly known as the “Tax Cuts and Jobs Act” imposes an unrelated business income tax for non-profits on expenses incurred in providing transportation and commuter benefits to their employees. Organizations that thought, reasonably, that they might be spared the tax by providing a payroll deduction mechanism for employees to pay for these items via qualified plans, instead learned that they would be taxed on their value anyway at the corporate tax rate of 21%.
Due to these provisions in the federal law, the state’s transportation fringe benefits mandate will result in exempt organizations automatically being subject to a 21% federal corporate tax on the amount of these benefits.
Members of Congress on both sides of the aisle have acknowledged that Section 512(a)(7) is harmful and patently unfair, and efforts to repeal the new tax are underway. But unless repeal is achieved, then the new commuter benefits mandate will unintentionally exacerbate the significant financial harm that non-profit organizations are already facing as a result of the federal tax law.
S-3838/A5472 will prevent 501(c)(3) organizations from being harmed unintentionally by the requirements of the new state mandate.
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