Retroactive 2014 Transit Benefit IncreaseDecember 29, 2014
Earlier this month Congress passed the Tax Increase Prevention Act of 2014. Included in the Act is a retroactive increase to the 2014 qualified transportation limit for mass transit expenses from $130 per month to $250 per month. Since employees cannot elect transit benefits on a retroactive basis, this retroactive benefit limit increase has little impact for most employers.
However, some employers may have provided employees with additional taxable transit benefits over $130 per month. That additional taxable benefit is now retroactively non-taxable under this Act. When the transit benefit was retroactively increased in early 2013 for 2012, the IRS issued guidance on how to correct 2012 transit benefits that were no longer subject to income taxes. We expect similar guidance will be issued in mid-January.
Please note that the mass transit benefit limit for 2015 remains at $130 per month.
Update January 8, 2015:
The IRS published Notice 2015-02 with guidance for employers who provided taxable transit benefits over $130 per month in 2014. The guidance addresses how to make adjustments on the employer’s Form 941 or Form 941-X, the requirement to repay or reimburse employees for overcollected FICA and Additional Medicare Tax, and the effect on the employee’s Form W-2 or the need to issue a corrected Form W-2.