On January 11th, 2016, the IRS issued guidance to help clarify how the retroactive increase in excludable tax benefits applies for 2015. We encourage all clients to read the full text of the guidance, as it outlines detailed procedures and examples that may apply to your specific situation. Here is a brief overview of the guidance:
Application of Retroactive Increase
For 2015, employers must reduce the taxable wages of affected employees, as reported on Forms 941 and W-2 and any equivalent forms, by the amount of any excess transit benefits.
- Employees may not retroactively increase their compensation reduction for 2015 to take advantage of the increase in the excludable amount for transit benefits in 2015.
- Employees may not reduce their compensation by more than $255 per month in 2016 in order to receive any permissible reimbursement for transit expenses incurred in 2015.
Special Administrative Procedure
The IRS is providing a special administrative procedure for employers that treated excess transit benefits as wages and that have not yet filed their fourth quarter Form 941 for 2015.
- Employers desiring to use this special administrative procedure must repay or reimburse their employees for the over-collected FICA tax (including any Additional Medicare Tax) on the excess transit benefits for all four quarters of 2015 upon or before filing the fourth quarter Form 941.
- By taking advantage of this special administrative procedure, employers will avoid having to file Forms 941-X, and will also avoid having to file Forms W-2c.
Employer Instructions for Form W-2
- Employers that paid excess transit benefits in 2015 and have not furnished 2015 Forms W-2 to their employees must take into account the increased exclusion for 2015 transit benefits in calculating the amount of wages reported in box 1, wages, tips, other compensation; box 3, social security wages; and box 5, Medicare wages and tips.
- Employers that have repaid or reimbursed their employees for the over-collected FICA taxes prior to furnishing Form W-2 must reduce the amounts of withheld tax reported in box 4, social security tax withheld, and box 6, Medicare tax withheld, by the amounts of the repayments or reimbursements.
- In all cases, employers must report in box 2, federal income tax withheld, the amount of income tax actually withheld during 2015.
- Employers that have already filed 2015 Forms W-2 with the SSA must file Forms W-2c, Corrected Wage and Tax Statement, to take into account the increased exclusion for transit benefits and to reflect any repayments or reimbursements of the withheld FICA tax, and must furnish copies of the Forms W-2c to the employees.
We hope that you find this brief overview helpful. As a reminder, we encourage all to read the full text and examples found in the guidance issued by the IRS.