The state of Illinois recently enacted a commuter benefit law that requires certain employers in the Chicago region to offer a pre-tax public transportation benefit to their eligible employees for the cost of their daily commutes starting January 1, 2024. The mandate applies to employers with 50 or more full-time employees — defined as those who work an average of 35 or more hours per week — within a covered geographic area. Employer locations must also be within one mile of a fixed-route transit service. Covered employers can meet their obligation by allowing eligible employees to purchase a public transit pass (e.g., pass, token, fare card, voucher) through pre-tax payroll deductions up to the maximum amount allowed under federal law.
The Chicago region joins New Jersey (statewide) and the following cities and regions with commuter benefit laws: the San Francisco Bay Area; the California cities of Berkeley and Richmond; the city and county of San Francisco; the San Francisco International Airport; Washington, D.C.; New York City; Philadelphia; and Seattle. Employers in these jurisdictions must offer eligible employees commuter benefits that meet specific requirements.
Additionally, California, Rhode Island and Washington, D.C. have laws that require some employers to offer a parking cash-out. Parking cash-out is a commuter benefit option where employers that provide free or subsidized parking also offer employees the option to take an equivalent cash payment, tax-free transit benefit or tax-free vanpool benefit instead of the employer-provided parking benefit.
The Tax Cuts and Jobs Act suspended the bicycle commuter benefit from 2018 until 2026, so qualified bicycle commuting reimbursements may no longer be excluded from taxable wages. The act also eliminated the employer tax deduction for qualified transportation fringe benefits (i.e., mass transit, parking and vanpooling benefits and bicycle commuting reimbursements), except as necessary for ensuring the safety of an employee. With the exception of the bicycle commuting benefit, these benefits generally will continue to be tax exempt to employees who pay for mass transit or workplace parking costs via pre-tax salary reduction. For 2023, the tax-excludable limit for mass transit, vanpool and parking expenses are $300 per month. As of this writing, the 2024 limit has not been announced.
Commuter benefit and parking cash-out laws are intended to encourage employees to use public transit, ridesharing or vanpooling to reduce traffic congestion and promote a cleaner environment. Employers subject to any of the commuter benefit or parking cash-out laws should ensure they comply with all requirements.
