OUR THOUGHTS ON:

IRS Addresses Payroll Tax and W-2 Issues Related To Retroactive Increase in 2012 Transit Benefit (IRS Notice 2013-8)

Tax

By Ron Kramer

On January 17, 2013, the IRS issued guidance on the payroll tax and Form W-2 issues related to the retroactive increase in the monthly transit benefit exclusion under IRC Section 132(f)(2)(A) from $125 to $240 per participating employee for 2012. This increase was enacted by Section 203 of the American Taxpayer Relief Act (ATRA).

The guidance in IRS Notice 2013-8 addresses employers’ questions regarding the retroactive application of the increased exclusion for 2012 and provides a special administrative procedure for employers to use in filing Form 941, Employer’s Quarterly Federal Tax Return, for the fourth quarter of 2012 to reflect changes in the excludable amount for transit benefits provided in all quarters of 2012, and in filing Forms W-2, Wage and Tax Statement for 2012. The guidance was issued to reduce filing and reporting burdens on employers providing the transit benefit.

The special administrative procedure will work best if the fourth quarter 2012 Form 941 and 2012 Form W-2s have not yet been filed or distributed.

Background

IRC Section 132(f)(2) provides that the amount of fringe benefits which are provided by an employer to any employee and which may be excluded from gross income under IRC Section 132(a)(5) shall not exceed $100 per month in the case of the aggregate of transportation in a commuter highway vehicle and any transit pass, and $175 in the case of qualified parking, and these amounts are adjusted annually for inflation.

Prior to enactment of ATRA, the adjusted maximum monthly excludable amount for 2012 for the aggregate of transportation in a commuter highway vehicle and any transit pass was $125 and the adjusted maximum monthly excludable amount for qualified parking was $240.

ATRA amended IRC Section 132(f)(2) to increase the maximum monthly excludable amount for employer-provided commuter highway vehicle transportation and transit pass benefits to an amount equal to the maximum monthly excludable amount for qualified parking. The amendment is effective retroactively beginning on January 1, 2012, and extending through December 31, 2013. Therefore, the monthly transportation and transit pass benefits for 2012 is $240 (the amount for 2013 is $245).

Action Required

Employers who provided transit benefits in excess of $125 per month and less than or equal to $240 per month in 2012, and who originally reported excess transit benefits as includible in gross income and wages, and withheld income taxes and FICA taxes, should consult IRS Notice 2013-8 and/or their payroll provider to make adjustments on Form 941 and Form W-2 for 2012. Reductions in employee and employer portions of 2012 FICA taxes are available. 

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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