By David Hrkach and Alice Siplin

With very little fanfare and a brief mention on one of the city’s news radio stations, New York City Council introduced the pretax mass-transit benefit (PMB) bill on May 28, 2003. According to Intro. No. 481 of the bill, companies with 50 or more employees in the city of New York would be required to offer such employees the opportunity to use pretax earnings to purchase qualified transportation benefits.

“While working New Yorkers may yet be granted some, albeit temporary, relief from the MTA’s (Metro Transportation Authority) ill-considered fare hike, there is a permanent solution that can go a long way towards eliminating the burden of the hike—all while saving businesses money in this difficult economic time,” said speaker Gifford Miller, according to a City Council communications release. “With PMBs, the average mass transit commuter could save $288 per year on monthly unlimited Metrocards; thus eliminating the $84 fare hike more than three times over. In fact, the overwhelming majority of commuters—from those taking Metro North to those riding our city’s ferries—would see the fare hike completely erased.”

Miller added that the city’s businesses could also save millions of dollars in payroll taxes by participating in the program and taking advantage of the preferential federal tax laws that created PMBs.

“It is quite simply sound public policy to require that businesses make PMBs available to their employees,” noted John Liu (D-Queens), chair of the Council’s Committee on Transportation.

Although the Council’s bill only would affect companies with more than 50 employees, as many as 1.4 million New York City commuters could realize as much as $588 million in tax savings each year under the PMBs, while, for their part, under the program New York City businesses could realize as much as $62 million in tax savings each year. According to John Cho, a spokesperson for Liu’s office, Council expects little resistance to the bill that is regarded as a win-win situation for businesses and employees alike.

PMBs fall under Section 132 of the IRS tax code. Although the bill would only require companies to offer their employees the mass transit benefit, the tax code also allows employees to take a pretax benefit of up to $190 each month for parking. This provision can apply to parking expenses at a mass transit location, not just in the city.

But mass transit is not the only pretax benefit out there for your clients. Unreimbursed medical expense (URM) is another popular benefit (Section 105). Employees can deduct a certain monthly amount for co-payments, deductibles, eye care, prescriptions and other medical expenses that health insurance does not cover.

Dependent day care (DDC) (Section 129) allows a $5,000-per-year pretax benefit for two parents. That’s a savings of about $1,250 per year (Federal Insurance Contributions Act, federal and New York state income tax). Premium Only Plans (POP), such as major medical and supplemental insurance, are yet another pretax benefit also available to companies under Section 125.

You or your clients can administer their own plans, but most companies turn to a third party in order to avoid the administrative challenges. Look for a Flexible Spending Account specialist that is not only competitively priced but also has a strong focus on customer service for your clients and their employees. These extra services include debit cards, direct payments to providers (day care centers, pharmacies, parking garages, etc.) and “no-cost guarantees” for your clients. By introducing PMBs to your clients, you are not only helping them take advantage of existing tax-favored programs, you are showing them how to offset the rising costs of insurance, transportation and other cost-of-living increases.

The PMB bill is scheduled for vote in early September. Support for the bill gained momentum with the recent court decision to uphold the MTA rate increase. If passed, the law would take affect 120 days after it is enacted. That means that a pretax plan must be in place by January of next year. So the question remains: Will your clients be prepared for New York City’s PMB bill?