The IRS has released new guidance clarifying how the retroactive increase for monthly transit benefits in 2014 applies, including a special administrative procedure for employers to use in filing Form 941, Employer’s Quarterly Federal Tax Return, for the fourth quarter of 2014.
Federal law generally allows the exclusion of employer-provided “qualified transportation fringe benefits” from an employee’s gross income, including transit passes and rides in a commuter highway vehicle between home and work. The Tax Increase Prevention Act of 2014 retroactively increased the 2014 monthly transit benefit exclusion for combined commuter highway vehicle transportation and transit passes from $130 to $250, until January 1, 2015.
Special Administrative Procedure
Due to the timing of the benefit change and the due dates for Forms 941 and Forms W-2, the IRS is providing a special administrative procedure for employers that treated “excess transit benefits” (i.e., in excess of $130 and up to $250) as wages and that have not yet filed their fourth quarter Form 941 for 2014.
Employers who desire to use this special administrative procedure must repay or reimburse their employees for the overcollected FICA tax (including any Additional Medicare Tax) on the excess transit benefits for all four quarters of 2014 on or before filing the fourth quarter Form 941.
By taking advantage of this special administrative procedure, employers will avoid having to file a Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, and Forms W-2c, Corrected Wage and Tax Statements.
IRS Notice 2015-2 provides more details regarding the special administrative procedure, as well as employer instructions for Form W-2 and normal procedures for employers who have filed fourth quarter Forms 941 or have not repaid or reimbursed employees prior to filing fourth quarter Forms 941.
Please Note: The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose.
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