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Los Angeles County Launches New Commuter Tax Benefit for 2021

More and more offices that were fully or partially shut down in 2020 are opening again. This is clear. If your employees are starting back on their commute for the first time in a year, perhaps a new commuter tax benefit will help ease their pain at least within their wallet.

Effective January 2021, employers within LA County with 50-249 employees, are required to offer employees the option to use pre-tax dollars for commuting expenses such as carpooling, transit, and parking at park-and-ride lots. This will benefit both employers and employees!  For employers, offering a pre-tax plan such as a commuter plan will reduce employer paid payroll taxes.  For employees, using pre-tax dollars may save 30% or more on their commuting expenses.

For employers that fail to comply, penalties are set to go into effect beginning January 2022. However, it remains unclear as to what that will look like.

All employers including non-profits in Los Angeles County with 50-249 employees (full & part-time) at a single worksite, must offer a commuter tax benefit to the full-time employees at that worksite. Through this ordinance, employees will have the opportunity to use up to $270 per month in pre-tax dollars to pay for commuting expenses.

If an employer already offers an equitable commuter benefits program to their employees, they may be exempt from the ordinance.

A commuter tax benefit operates like a Healthcare Savings Account (HSA) or a Flexible Spending Account (FSA). Employers can save money by reducing their overall payroll taxes. When more and more employees sign up for the benefit, the more the tax savings employers see. While employees are saving by using pre-tax dollars for commute expenses they would normally pay with taxed dollars.

Additionally, the tax benefit may:

  1. Attract new employees and increase current employee retention. Benefits packages can often be a huge interest point for protentional candidates and ultimately attract more qualified talent to apply for future positions at an organization. Similarly, benefits packages also serve as a tool for retention that can reduce costly turnover in a workplace.
  2. Help the environment. Reducing time spent on the road can make a huge impact on the effects that induvial transit has on the environment. The more people that chose alternative commuting options, the more impact they have on improving the environment and reducing overall greenhouse gas emissions.

It is important to check with your local jurisdiction to see if your area has also enacted similar legislation. Cities like New York, Seattle, San Francisco, and Berkeley have already put similar laws in prior years.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.