Guidance on retroactive increase of transit benefits | KPMG | QA

Guidance for employers, retroactive increase of employee transit benefits

Guidance on retroactive increase of transit benefits

The IRS today released an advance version of Notice 2016-6 that provides guidance and possible options for employers with respect to the retroactive increase to the amount of the monthly transit benefit exclusion under section 132(f)(2)(A), as enacted in December 2015.


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The Consolidated Appropriations, 2016 (enacted December 18, 2015) includes a provision that provides parity for an exclusion from income for employer-provided transit benefits and qualified parking benefits. In other words, the maximum monthly excludable amount for the aggregate of transportation in a commuter highway vehicle and any transit pass is equal to the maximum monthly excludable amount for qualified parking. 

Also, with this legislation, the excludible amount of $130 is increased to $250 per month in combined transit pass and commuter highway vehicle benefits. [For 2016, the monthly exclusion limit for both qualified parking and employer-provided transit benefits will be $255.]

Special administrative procedure

Notice 2016-6 [PDF 36 KB] provides a “special administrative procedure” for employers who want to make adjustments for 2015 on the Form 941 filed for the fourth quarter of 2015. In other words, employers may follow this guidance in filing Form 941, Employer’s QUARTERLY Federal Tax Return, for the fourth quarter of 2015 to reflect changes in the excludable amount for transit benefits provided in all quarters of 2015 and in filing Forms W-2.

Notice 2016-6 also includes procedures for employers that have already filed Form 941 for the fourth quarter of 2015. These employers may use Form 941-X and “normal” procedures to make an adjustment or claim a refund for any quarter in 2015 with regard to the overpayment of tax on the excess transit benefits after repaying or reimbursing the employees or, for claims for refund, securing consents from their employees.

Today’s IRS notice also includes instructions for employers that paid excess transit benefits during 2015 but have not yet provided their employees with Forms W-2 for 2015 and instructions for those employers that have already filed Forms W-2 for 2015.

Today’s guidance explains that for 2015, employers must reduce the taxable wages of affected employees by the amount of any “excess transit benefits” (that is, the amount of transit benefits exceeding $130 up to $250 per month). Notice 2016-6 reminds employers that they may not repay, reimburse, make an adjustment to, or seek a refund of additional Medicare tax or income tax deducted or withheld for any employee in 2015.

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