Commuter Transportation Benefits

Commuter Transportation Benefits
NEW JERSEY DIVISION OF TAXATION
TECHNICAL BULLETIN
TB-24R
TAX:
ISSUED: 12-01-10
GROSS INCOME TAX
TOPIC: EMPLOYEE TAX INCENTIVES FOR EMPLOYER-PROVIDED
COMMUTER TRANSPORTATION BENEFITS
Background
The Gross Income Tax exclusion for individuals receiving commuter transportation benefits
from their employer, found at N.J.S.A. 54A:6-23, was enacted pursuant to P.L. 1993, c. 108.
When enacted, the exclusion was connected with the New Jersey Traffic Congestion and Air
Pollution Control Act (P.L. 1992, c. 32), most of which was repealed by P.L 1996, c. 121. The
current provisions are explained below.
Employee Benefits
N.J.S.A. 54A:6-23.a. provides a Gross Income Tax exclusion for “employer provided commuter
transportation benefits as defined pursuant to section 3 of P.L. 1992, c. 32 (C.27:26A-3), up to
and including the limit per taxable year … pursuant to subsection b. of this section.”
Exclusion Dollar Limit - The dollar limit for the exclusion is adjusted, annually, so that it is the
same as the dollar limit for the commuter transportation benefits allowed pursuant to federal
income tax. See N.J.S.A. 54A:6-23.b and I.R.C. section 132. For information on the New Jersey
exclusion limit for a particular tax year, please see the Division of Taxation notice at
http://www.state.nj.us/treasury/taxation/cmntr.shtml.
The New Jersey exclusion differs from the federal exclusion primarily in one way. For the New
Jersey tax exclusion, the benefit must be provided in addition to regular compensation and not
pursuant to a compensation reduction plan or agreement. See N.J.S.A. 54A:6-23.c.
Therefore, if an employer provides commuter transportation benefits pursuant to a compensation
reduction plan or agreement, the salary or wage amount set aside for the “account” is taxable
for New Jersey Gross Income Tax purposes. In other words, for Gross Income Tax, employee
withholding tax is based on wages before any deduction for commuter transportation benefits.
(For Gross Income Tax, a payroll deduction for a commuter transportation account cannot be
treated as “pre-tax”.) This treatment may be changed only if amendatory legislation is passed.
For determining benefits that are taxable for Gross Income Tax, the treatment may be
summarized as follows. Commuter transportation benefits that are taxable for federal income tax
generally are taxable for New Jersey Gross Income Tax (for example, when benefits are “in
excess of” the excludable amount). Further, amounts deducted from regular compensation, and
put towards commuter transportation benefits, are part of New Jersey taxable wages.
Definitions
Alternative means of commuting is travel between a person’s place of residence and place of
employment other than in a motor vehicle occupied by one person. Some alternatives are public
transportation, carpools, van pools, bus pools, ferries, bicycles and walking.
Commuter transportation benefit is the cost to employers of providing benefits to an employee
for using an alternative means of commuting and the cost of providing services and facilities
which would encourage or facilitate use by the employee, including the costs of parking at parkand-ride lots. See N.J.S.A. 27:26A-3.
Employer Benefits
The tax credit and special income reduction benefits provided to businesses in conjunction with
the New Jersey Traffic Congestion and Air Pollution Control Act have now expired; the 2007 tax
year was the last tax year that those benefits were allowed to employers. See N.J.S.A. 27:26A15.a.
Reporting Guidelines
Each employee who receives money towards commuter transportation benefits must furnish the
employer with suitable proof, in the form of receipts, ticket stubs or other documentation, to
show that the employer-provided money was used for an alternative means of commuting.
Compliance with federal requirements for documentation will satisfy the New Jersey
requirements.
W-2 Reporting -- Federal guidelines for the W-2 instruct employers to include any taxable
commuter transportation benefits in the taxable wage amount entered in box 1 of the W-2.
Similarly, on the State copy or boxes of the W-2, New Jersey employers must include New
Jersey taxable benefits (see above) in the total taxable wage amount. Employers are not required
to show the benefit amount as a separate figure on the W-2.* (See IRS Instructions for Forms
W-2 and W-3.) The taxable amount for New Jersey may be higher than the federal taxable
amount (see above). If an employee believes the W-2 State wage box amount is incorrect, the
employee should request a corrected W-2 from the employer.
Additional Information Concerning Parking and Bicycling Benefits
Since the inception of the Gross Income Tax, New Jersey has followed the federal tax exclusion
for the value of parking provided “at or near the employer’s premises” (e.g. parking where one
works.) In addition, N.J.S.A. 54A:6-23.d. has provisions to exempt “qualified parking fringe
benefits.” Therefore, if parking “at or near” the employer’s premises is tax-excluded for federal
income tax, it is also tax-excluded for Gross Income Tax. Similarly, New Jersey will follow the
federal exclusion for the value of “park & ride” parking benefits (as long as they are not
provided through a salary reduction plan.) See N.J.S.A. 54A:6-23.d.
Bicycle Commuting Benefits – The federal and New Jersey requirements for excluding bicycle
commuting benefits are comparable. Therefore, if a bicycling benefit is excludable for federal
income tax, it is also excludable for New Jersey gross income tax purposes.
* Legislative history for the GIT exclusion indicates a legislative intent to “reduce user
compliance confusion” by generally following federal requirements.
Issued by Regulatory Services Branch
New Jersey Division of Taxation
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