Retroactive improvements to transportation fringe benefits
Parity for employer-provided mass transit and parking benefits
TAX ALERT |
For 2015, an employer could reimburse employees on a pretax basis up to (1) $250 per month for qualified parking, and (2) $130 a month for transit passes and commuter transportation in a commuter highway vehicle (including van pools). Recent legislation amended the rules to provide parity in the level of benefits for both types of transportation fringe benefits retroactive to Jan. 1, 2015.
The permanent change, while very welcome, presents administrative issues for employers that offer such benefits because of its retroactive nature. If, for example, an employer was providing its employees with transit passes worth $200 per month and included $70 per month in an employee’s taxable wages, the $70 per month must now be treated as a pretax amount for purposes of reporting the employee’s taxable wages on Forms 941 and W-2.
Form 941 reporting
In order to minimize administrative burdens, the IRS, in Notice 2016-6, provides a special administrative procedure that permits an employer to process its entire 2015 adjustment on Form 941 for the fourth quarter of 2015, rather than amending each prior quarterly return. This procedure requires the employer to refund to the employees (in advance of filing the Form 941) their share of any withheld excess FICA tax or Additional Medicare Tax.
If an employer has already filed Form 941 for the fourth quarter of 2015, the employer may use Form 941-X and the normal amended return procedures to make an adjustment or claim a refund for any quarter in 2015 with regard to the overpayment of FICA tax (but not Additional Medicare Tax) on the excess transit benefits after first repaying or reimbursing the employees or securing consents from their employees.
Form W-2 reporting
The notice also has instructions for employers that paid excess transit benefits during 2015 but have not yet issued Forms W-2 for 2015 to their employees, plus guidance for those employers that have already filed 2015 Forms W-2.