IRS Guidance on Retroactive Transit Benefit Increase for 2014

The Internal Revenue Service has released Notice 2015-2 (link below) providing guidance on the retroactive transit benefit increase recently enacted in the Tax Increase Prevention Act of 2014. The break for transit riders was increased under IRC §132(f)(2)(A) from $130 per participating employee to $250 per participating employee, retroactively, from January 1 through December 31, 2014, to equal the separate $250 a month break for parking.

The notice provides a special administrative procedure for employers to use in applying the law change, allowing all related adjustments to be reported on the fourth quarter Form 941 (due 2/2/15) and the Form W-2. Under this procedure, employers must reimburse employees for the over-collected FICA tax (including the additional Medicare tax) attributable to the excess transit benefits for all four quarters on or before filing the fourth quarter Form 941.

This procedure would avoid the need to file Forms 941-X and Forms W-2c.

Note that there is no change with respect to 2015 benefits. For 2015, pretax benefits are limited to $250 for parking expenses and $130 for mass transit expenses each month.

By: Craig M. Brown, CPA