Employer-sponsored, tax-free commuter transportation benefits for mass transit and parking have been set at parity, up to maximum amounts of $255 per month for 2016, under federal tax extender legislation signed Dec. 18 by President Barack Obama.
Commuter parity benefits provisions under the legislation--the Consolidated Appropriations Act, 2016 (Pub. L. 114-113)—are retroactive to Jan. 1, 2015. For 2015, maximum tax-free commuter benefits are $250 per month for parking and for mass transit or vanpools. Prior to federal extender legislation, commuter transportation rates for 2015 were $130 per month for mass transit or vanpools and $250 per month for parking.
Under the legislation, tax-free, employer-provided bicycle commuter benefits remain at their prior level of up to $20 per month toward the purchase and maintenance of a bicycle.
Under tax code Section 132, if employers provide parking, transit or bicycle commuting benefits that exceed IRS monthly limits, excess benefit payments or reimbursements must be included in employees' wages.
Meanwhile, the IRS has created a correction procedure for those employers that reported to the IRS 2015 transit benefits that are now no longer taxable. The correction procedure is in Notice 2016-6, which explains what employers should do when filing Form 941, Employer’s Quarterly Federal Tax Return, for the fourth quarter of 2015. The notice 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.
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, the notice 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.
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