IRS Issues Special Procedures for Retroactive Parity of 2014 Qualified Transit Benefits

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By Allison M. Gatrone

A special administrative procedure for employers adjusting employment tax withholding for retroactive parity of 2014 qualified employer-provided transit benefits was released Jan. 8 by the Internal Revenue Service.

The tax-free public transit and van-pool benefit amount rose to $250 a month from $130 a month, retroactive to Jan. 1, 2014, but not valid in 2015.

The guidelines (Notice 2015-2) allow employers to use Form 941, Employer's Quarterly Federal Tax Return, to adjust for the retroactively increased amount of excludable benefits accumulated during all quarters of 2014.

The special procedure, which is similar to that issued by the IRS for tax year 2012, includes special permission for employers to refund additional Medicare tax to employees before filing Form 941, said Scott Mezistrano, IRS representative for industry stakeholder engagement and outreach. “This is a huge exception and only applies for this special procedure,” he said Jan. 8 during a monthly payroll industry teleconference.

The additional Medicare tax was not in effect in tax year 2012. Under normal procedures, employers cannot repay or reimburse employees for the tax after the end of 2014, the notice said.

By using the special procedure, employers can avoid filing Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, and Form W-2c, Corrected Wage and Tax Statement.

The procedure is available to employers that have not yet filed the fourth-quarter Form 941, the notice said. Employers that already filed the fourth-quarter Form 941 for 2014 cannot use the special procedure and must file Forms 941-X for each quarter to adjust for the retroactive increase in excludable amounts, IRS officials said during the teleconference.

To use the procedure, employers must first repay employee Social Security and Medicare taxes and additional Medicare tax that were withheld for the excess transit benefit amounts, the notice said. Employers must reimburse these amounts to employees before correcting the employer share of Federal Insurance Contributions Act taxes, the notice said.

Written FICA Tax Statements From Employees Not Required

Employers using this procedure do not need to obtain written statements from employees indicating that they did not and will not make claims for a FICA tax refunds, the notice said.

Employers that have not yet provided Forms W-2 to employees must take into account the increased exclusion for transit benefits on the forms, Mezistrano said. If employers already have provided the forms to employees and filed them with the Social Security Administration, they must file Form W-2c with the SSA and provide Forms W-2c to employees, the notice said.

If Forms W-2 were received by employees but not filed with the SSA, employers must send new W-2s with the correct information to the SSA and provide employees with W-2s that say “Corrected,” it said.