On December 19, 2014, the Tax Increase Prevention Act of 2014 (TIPA) became law. TIPA included a retroactive increase for 2014 in the amount of transit benefits an employee could exclude from income, whether those benefits are paid directly by the employer or by the employee on a pre-tax basis. Prior to the retroactive TIPA increase, the total excludable amount for commuter highway vehicle transportation and transit pass benefits was $130 per month (while the maximum benefit for qualified parking was $250 per month). TIPA increased the maximum monthly benefit for commuter highway vehicle transportation and transit pass benefits to $250 for 2014.
Employers may use the normal refund process that applies when FICA is withheld in error, if they prefer.
- The employer must repay or reimburse the over-collected FICA (including any Additional Medicare Tax) for all four quarters of 2014 on or before the date they file the fourth quarter Form 941.
- The employer should reduce the fourth quarter “Wages, tips and compensation” reported on line 2, the “Taxable Social Ssecurity wages” reported on line 5a, the “Taxable Medicare wages and tips” reported on line 5c, and the “Taxable wages & tips subject to Additional Medicare Tax withholding” reported on line 5d by the benefits that were under-claimed for all four quarters of 2014.
- To avoid a mismatch between the total taxes reported on Form 941, line 10, Total taxes after adjustments, and the Total liability for the quarter reported on Form 941, Line 14 (for a monthly schedule depositor) or Schedule B (Form 941) (for a semiweekly schedule depositor), the employer should reduce the last liability of the quarter reported (that is, Month 3 on line 14 or the last liability entry on Schedule B) by the amount of the tax reduction due to use of the streamlined process. If the amount of the tax reduction exceeds the last liability of the quarter reported on line 14 or Schedule B, the employer should apply the amount of the tax reduction to reduce previous liabilities in reverse order until the amount of the tax reduction is completely used. Note that negative numbers must not be entered on Line 14 or Schedule B.
- Will not be required to provide a Form W-2c to affected employees.
- Will not be required to get statements from affected employees confirming the employee has not and will not claim a FICA refund for these amounts.
- Will not be required to file Form 941-X.
To download the Excludable Transit Benefits document, click here.