Enactment of the Consolidated Appropriations Act of 2015 (the Act) permanently allowed for parity of the monthly combined transit pass and commuter highway vehicle (vanpool) limit with the 2015 parking monthly limit by raising it from $130 to $250, retroactive for the period January 1, 2015 through December 31, 2015. The Internal Revenue Service (IRS) issued Notice 2016-6 outlining special administrative procedures for employers to use in response to the Act’s retroactive increase in the transit monthly limit. This Notice provides procedures for employers who provided transit benefits in excess of $130 per month and less than or equal to $250 per month in the 2015 tax year. In order for employers to make adjustments for 2015, the Notice provides administrative procedures to follow. Below is a summary of IRS Notice 2016-6. We have also included a link to the Notice for your use.
PLEASE NOTE: Beginning January 1, 2016, the monthly limit for transit and vanpooling, combined, is $255 for the 2016 calendar year.
The IRS has provided information indicating that employers must reduce the taxable wages of affected employees, as reported on 2015 Forms 941 and W-2, by the amount of any excess transit benefits. Excess transit benefits are benefits provided by an employer during 2015 to an employee in excess of $130 up to $250 per month. Affected employees are those to whom an employer provided such excess transit benefits.
If you have affected employees to whom you provided excess transit benefits, please see Notice 2016-6 for special administrative procedures. Of course, clients are urged, however, to also seek advice from their own legal and tax advisors.
For employers who need to take advantage of the retroactivity offered by the Act, in light of the guidance in Notice 2016-6, here are some practical steps to accomplish the re-characterization of amounts.
The bulk of the guidance relates to employers who originally reported excess transit benefits as includible in gross income and wages and withheld FICA taxes accordingly. There are two sets of instructions. There are instructions for a special administrative procedure for Form 941 filers who have not yet filed their 4th quarter returns for 2015. This procedure can only be used to the extent that employers have repaid or reimbursed their employees for the employee share of FICA tax attributable to the excess transit benefit. There is a separate set of instructions detailing the procedure for filers who have already filed their 4th quarter Form 941 or have not repaid or reimbursed all employees.
To complete either process, Forms W-2 that are furnished to employees must take into account the increased exclusion of transit benefits in calculating the amount of reportable wages. More detailed instructions are provided below.
ACTION TO TAKE:
Read the "Employer Facts." If this notice applies to your 2015 transit benefits, then review both the Form 941 and W-2 sections to determine your best course of action for your unique circumstances. IRS Notice 2016-6 should also be read carefully.
Employers who included excess transit benefits in gross income and wages and have not yet filed their fourth quarter Form 941 for 2015:
To ensure that use of this special administrative procedure does not result in a mismatch between the total taxes reported on Form 941, line 10, Total taxes after adjustments and the Total liability for the quarter reported on Form 941, Line 14 (for a monthly schedule depositor) or Schedule B (Form 941) (for a semiweekly schedule depositor), an employer should use the following procedure
This procedure will allow employers to avoid having to file Forms 941-X and possibly, Forms W-2c.
Employers who have already filed Form 941 or have not repaid or reimbursed over-collected FICA taxes:
This process is in regard to the overpayment of tax on the excess transit benefits after reimbursing employees, or for refund claims, securing consents from its employees.
Under the normal procedures, the employer must obtain the required statements under §§ 31.6413(a)-1 or 31.6402(a)-2 (subject to the exception for making reasonable efforts). The employer may not repay or reimburse, make an adjustment with respect to, or seek a refund of, Additional Medicare Tax or income tax deducted or withheld from the employee in 2015.
In all cases, employers must report in box 2, Federal income tax withheld, the amount of income tax actually withheld during 2015.
Employers who have not furnished 2015 Forms W-2 to employees:
Note that under the normal procedures, the amount reported in box 6, Medicare tax withheld, will not be reduced with regard to any Additional Medicare withheld on the excess transit benefits because no repayment or reimbursement of such amount is permitted after the end of 2015.
In all cases, employers must report in box 2, Federal Income tax withheld, the amount of income tax actually withheld during 2015.
Employers who repaid or reimbursed their employees for the over-collected FICA taxes after furnishing Form W-2 but before filing Forms W-2 with the Social Security Administration (SSA):
Employers who already filed 2015 Forms W-2 with SSA:
OTHER THINGS TO CONSIDER
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