IRS releases guidance on retroactive increase in 2014 excludable transit benefits

Posted January 13, 2015 Industry Insights, Expert Tips, Company News

The IRS has released guidance on how employers should handle the 11th hour retroactive 2014 increase in the monthly exclusion for employer-provided transit and vanpooling benefits from $130 to $250 per participating employee.

It is important to note employers are not required to provide additional transit benefits to their employees for 2014.

IRS Notice 2015-2 gives information on reducing filing and reporting burdens for employers who want to provide the increased benefit. Normally, employers who originally reported excess transit benefits as includible in gross wages and withheld income taxes and FICA taxes would be required to file a Form 941-X for each quarter to make corrections.

However, the IRS is providing an optional special administrative procedure that will require employers to repay or reimburse their employees for the over-collected FICA tax on the excess transit benefits for all four quarters of 2014 on or before filing the fourth quarter Form 941.


Special administrative procedure

This procedure can only be used when employers have repaid their employees for the employee share of FICA tax (including any Additional Medicare Tax attributable to the excess transit benefits). Employers that take advantage of this special procedure will avoid having to file Forms 941-X and Forms W-2c.

Employers completing fourth quarter Form 941 may reduce:

  • Line 2: Fourth quarter wages, tips and compensation
  • Line 5a: Taxable social security wages
  • Line 5c: Taxable Medicare wages and tips
  • Line 5d: Taxable wages & tips subject to Additional Medicare tax withholding by the excess transit benefits for all four quarter of 2014.

Employers do not need to obtain written statements from each employee confirming that the employee did not make a claim (or if the employee did make a claim, but was rejected) and will not make a claim for a refund of FICA tax over-collected in the prior year.


Other method to address repayment

Pages 7-11 of the notice give additional details on addressing repayment of over-withheld social security tax along with the administrative process required for employers that have filed their fourth quarter Form 941 or have not repaid employees prior to filing fourth quarter Form 941.


For 2015, benefit limits revert back

This legislation does not increase the limits for 2015. We encourage employers to communicate the unequal limits of $130 for transit and $250 for parking for their 2015 plans. Although proposed tax legislation in 2015 will likely make the transit/commuter benefit limit equal to the parking benefit limit, we should not count on the modified language anytime soon.


Please note that the information contained in this document is designed to provide authoritative and accurate information, in regard to the subject matter covered. However, it is not provided as legal or tax advice and no representation is made as to the sufficiency for your specific company’s needs. This document should be reviewed by your legal counsel or tax consultant before use.

Additionally, the messages and content within the Pittsburgh Health Care Reform group do not reflect the advisory services of Henderson Brothers, Inc.