With the passage of the PATH Tax Act in December of 2015, Congress retroactively increased the amount of the tax exclusion cap for mass transportation and transit pass benefits. (See Marcum LLP's full analysis of the PATH Act here). Prior to the passage of PATH, the original exclusion was $130 per month. The retroactive change increases the exclusion to $250 per month, effective to the beginning of 2015.
For those employers that originally reported transit benefits in excess of $130 per month as includable in gross income and withheld income taxes and FICA, the IRS has issued Notice 2016-6, which provides guidance on how to treat the excess benefits on the final 2015 Form 941.
Failing to adjust for the whole year on a timely filed original Form 941 for the fourth quarter 2015 will force a taxpayer to amend each individual quarter at some point in the future, in order to obtain the provided benefit. Therefore, this notice provides important, time-sensitive information to assist tax, payroll, human resources and benefit departments with the necessary action steps. Employers who fail to use these special procedures or have already filed the fourth quarter Form 941 will be required to amend prior quarterly Form 941s by filing Form 941X. If an employer previously provided benefits and included a taxable portion in employees' taxable wages, and some of that taxable wage is now not taxable by reason of the new legislation, and the company fails to take action, the employee's W2 reporting will be incorrect.
Employers desiring to use the streamlined and simplified special administrative procedure must repay or reimburse their employees for the over-collected FICA and Medicare taxes on the excess benefits for all four quarters before filing the final fourth quarter Form 941.
If you or your employer participate in a mass transit benefit program and have questions related to how this retroactive change may effect payroll filings, please contact your Marcum Tax professional.