Effective December 31, 2022, the City of Philadelphia will require businesses with 50 or more covered employees to offer workers either a pre-tax payroll deduction for mass transit and qualified bicycle expenses or an employer paid benefit covering mass transit expenses. With many Philadelphia offices reopening following COVID closures, Mayor Jim Kenney signed the new Employee Commuter Transit Benefit Program into law enabling Philadelphians to use pre-tax income to cover commuting costs.
The law applies to employees working an average of 30-plus hours per week in Philadelphia for the same employer over the last year. If an employer isn’t headquartered in the City, the law still applies to them if they have 50-plus covered employees in Philadelphia. However, the law would not apply for an employer that has fewer than 50 workers physically located in Philadelphia (such as 35 in the City and 15 in New Jersey). We expect that Philadelphia will likely issue helpful guidance in advance of the December 31, 2022 effective date.
With the adoption of this requirement, Philadelphia now joins a growing list of cities and municipalities implementing their own laws requiring businesses to offer transit benefits (e.g., San Francisco, New York, Washington, D.C.). In 2019, New Jersey adopted the first statewide requirement that employers offer pre-tax transportation fringe benefits. Commuter benefit programs are often voluntarily offered or required in locations where mass transit is available and used frequently by employees to travel to and from work. Under Internal Revenue Code Section 132(f), employers are permitted to offer qualified commuter benefits to employees on a tax-free basis. A commuter benefit program allows workers to set aside pre-tax wages to pay for qualified transportation costs such as transit (subway, bus, ferry, etc.) passes, transportation in a commuter highway vehicle, vanpools, or parking. The amount that can be excluded from income is subject to an inflation-adjusted statutory limit (for 2022, the maximum is $280 per month). See this IRS webpage for highlights on the tax rules applicable to employer-provided parking and what to expect if the IRS audits this benefit.
Companies offering transit benefits will often rely on commuter benefit or flexible spending account vendors to design compliant programs, process claims, and provide communication and customer service. These vendors will also oversee the conformance of the programs with IRS rules and any applicable state or local ordinance requirements.
Covered Philadelphia employers should begin considering this new law and should also watch for implementing guidance. All covered employers should start taking steps to implement the commuter program, such as exploring options with payroll providers and third-party vendors. Conner Strong & Buckelew will provide alerts and updates as new information becomes available. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.