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IRS Issues Guidance on 2012 Retroactive Increase in Monthly Transit Benefit Exclusion

Contributor: Heather Santonino, Manager, Tax & Business

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The IRS recently issued a Notice (Notice 2013-8) which provides guidance for employers regarding the increased monthly transit benefit exclusion included in the American Taxpayer Relief Act (ATRA) enacted on January 2, 2013. The IRS has provided special administrative procedures for employers to use in filing Form 941 for the fourth quarter and Forms W-2 to account for this change.

Background
Qualified transportation fringe benefits are excluded from gross income and include the following employer-provided benefits:

  1. Transportation in a commuter highway vehicle between home and work,
  2. Any transit pass, or
  3. Qualified parking
The ATRA retroactively increased the monthly transit benefit exclusion from $125 to $240 per participating employee for the 2012 calendar year.

Employers who would like to make adjustments on Form 941 for the Fourth Quarter of 2012
Employers who originally reported excess transit benefits (amounts in excess of $125/month up to $240/month)as gross income and wages, and withheld income taxes and FICA taxes on the income would normally be required to file Form 941-X for each quarter to correct the error. For employers who have not yet filed their fourth quarter 2012 Form 941 and W-2 Forms, the IRS procedures avoid filing Forms 941-X and Forms W-2c.

When preparing fourth quarter Form 941, employers may reduce the fourth quarter wages, tips and compensation reported on line 2, taxable social security wages reported on line 5a, and medicare wages and tips reported on line 5c, by the excess transit benefits for all four quarters of 2012. This procedure can only be used to the extent employers have repaid or reimbursed their employees for the employee share of the FICA tax attributable to the excess transit benefits. Employers are not required to obtain written statements from employees confirming that the employee did not make a claim and will not make a claim for a refund of FICA tax overcollected in a prior year.

Employers who filed a Fourth Quarter Form 941 or did not reimburse all employees
Employers who have already filed the fourth quarter Form 941 must file Form 941-X to make an adjustment or claim a refund for any quarter in 2012 for an overpayment of tax on the excess transit benefits after repaying or reimbursing employees or securing written consent from employees. Form 941-X and normal procedures will be required for employers who have not repaid or reimbursed some or all employees who received excess transit benefits in 2012 before filing the fourth quarter Form 941.

W-2 Forms
Employers that have not furnished Forms W-2 to their employees should take into account the increased exclusion for transit benefits. Employers that repaid or reimbursed their employees for the overcollected FICA taxes should reduce the FICA and Medicare amounts withheld. In all cases, employers must report the actual Federal income tax withheld during 2012.

Employers that repaid or reimbursed their employees for the overcollected FICA taxes after furnishing Forms W-2 but before filing Forms W-2 with the Social Security Administration (SSA) should check the “Void” box at the top of each incorrect Form W-2 and write “CORRECTED” on the employee’s new copies.

Employers that have already filed Forms W-2 with the SSA will need to file Forms W-2c, Corrected Wage and Tax Statement.

Further details can be found in IRS Notice 2013-8 located on the IRS website.

For additional guidance on this time sensitive matter, please contact your Marcum Tax Advisor.

 
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