IRS Gives Employers Transit Benefit Correction Procedures

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By Kristen Ricaurte Knebel

Jan. 11 — Employers that reported to the Internal Revenue Service 2015 transit benefits that are no longer taxable under legislation passed late in the year now have a way to make corrections.

The Internal Revenue Service issued guidance on Jan. 11 addressing the congressionally passed increase in the monthly limit on the employer-provided benefit for transit that can be excluded from employees' taxable income to $250 per employee, up from $130. That change, made by a federal spending package, the Consolidated Appropriations Act, 2016 (Pub. L. No. 114-113), upped the monthly exclusion to $250 per participating employee from Jan. 1, 2015, through Dec. 31, 2015, and permanently re-established parity between the tax treatment of employer-provided transit and parking benefits.

The guidance lays out a special administrative procedure for employers to use when filing Form 941, Employer’s Quarterly Federal Tax Return, for the fourth quarter of 2015, the IRS said in the guidance, Notice 2016-6. The guidance helps employers “reflect changes in the excludable amount for transit benefits provided in all quarters of 2015 and in filing Forms W-2, Wage and Tax Statement,” the notice said.

“In view of the timing of the statutory change and the due dates for Forms 941 for the fourth quarter of 2015 and Forms W-2, and in order to reduce administrative burden, the Service is providing a special administrative procedure for employers that treated excess transit benefits as wages and that have not yet filed their fourth quarter Form 941 for 2015,” said the notice.

Employers that want to use the special procedure must repay or reimburse employees for the over-collected Federal Insurance Contributions Act tax, including any Additional Medicare Tax, on the excess transit benefits for all four quarters of 2015 on or before filing the fourth-quarter Form 941, it said.

When reporting amounts for the fourth quarter on Form 941, employers can reduce the fourth-quarter wages, tips and compensation, as well as the taxable Social Security wages, and taxable wages and tips subject to Additional Medicare Tax withholding, by the excess transit benefits for all four quarters of 2014, the notice said.

Employers that have already filed the Form 941 for the fourth quarter of 2015 must use Form 941–X and normal procedures to make adjustments or claim a refund for an overpayment of tax on excess transit benefits for any quarter in 2015, the IRS said.

For more information, see Compensation and Benefits Library’s Vanpool and Transportation Subsidies chapter.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at