At the end of July 2023, the Illinois General Assembly passed into law the Transportation Benefits Program Act. This law applies to employers in Chicago and surrounding areas that have 50 or more “covered employees” (defined as employees who average 35 hours per week or more). The TBPA requires these employers to offer covered employees the opportunity to participate in a tax-free commuter benefit program according to the federal IRS rules found in §132(f).
Briefly, employees will be able to use pre-tax dollars for “the purchase of a transit pass, via payroll deduction, such that the costs for such purchases may be excluded from the employee’s taxable wages and compensation…” Covered employees must be offered the ability to enroll after 120 days of employment.
While pre-tax transit programs have been around for several years, not all employers are familiar with the details of how these programs work. There are a couple of points about these programs that bear review for employers who will be implementing these programs for the first time.
To begin with, §132(f) requires that employers order transit passes on behalf of their employees if those passes are “readily available” in the metropolitan area where the employer is located. Suffice it to say that Chicago and the surrounding suburbs are areas where transit passes are readily available. That means that the program will not be allowed to simply reimburse employees for passes they have purchased themselves. Instead, the employer will need to collect orders and work either with a TPA or a transit authority directly to purchase and distribute passes to their employees.
Next, §132(f) plans impose a monthly cap both on the amount of pre-tax deductions and the amount of eligible expenses for any given calendar month. For 2023, that amount is $300. At the time of writing, the 2024 limit had not yet been published. The deduction limit is straightforward to understand, but the maximum monthly reimbursement limit can cause confusion. Specifically, if employees do not use the full $300 in a month, the excess amount will roll over to the next month. However, that excess amount will not be able to be used for additional expenses in that subsequent month. For example, Employee A contributes $300 / month, and in February only uses $250. They contributed another $300 in March and have a balance of $350. They still can only be reimbursed for $300 of expenses incurred in March though, meaning the $50 will rollover again into April. It is common to see employees start building balances that they cannot access unless they monitor their monthly usage and adjust their elections accordingly to make sure their balances stay within the $300 monthly spending limit. Like FSAs, unused funds cannot be cashed out. Additionally, the benefit is not subject to COBRA, so employees will not be able to spend down the balance post-termination.
The law goes into effect January 1, 2024, and requires that the Regional Transportation Authority publish a map of addresses that are located within the geographic area that is encompassed for the TBPA. In the meantime, employers should begin evaluating TPAs for compatible services. Reach out to your MMA Midwest team for more help!
