Under the year-end 2015 Omnibus Tax Bill, parking and transit benefits were increased retroactively. The monthly tax-free limit on transit/van pool benefits has increased for 2015 from $130.00 per month to $250.00 per month.
To address employers’ questions regarding the retroactive application of the increased exclusion for 2015 and to reduce filing and reporting burdens, the Internal Revenue Service is clarifying how the increase applies for 2015 and providing a special administrative procedure for employers to use 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, Wage and Tax Statement.
To make employment tax corrections for overpayments (that is, to make adjustments or to claim refunds), an employer uses the “X” form that corresponds to the return being corrected. Thus, an employer corrects overreported taxes on a previously filed Form 941 by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
Employers that originally reported excess transit benefits as includible in gross income and wages and withheld income taxes and FICA taxes would normally be required to file Form 941-X for each quarter to make corrections.
Special Administrative Procedure For Employers That Desire To Make Adjustments for 2015 On The Form 941 Filed For The Fourth Quarter of 2015
In view of the timing of the statutory change and the due dates for Forms 941 for the fourth quarter of 2015 and Forms W-2, and in order to reduce administrative burden, 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. The employer, in reporting amounts on its fourth quarter Form 941, may reduce the fourth quarter Wages, tips and compensation reported on line 2, Taxable social security wages reported on line 5a, Taxable Medicare wages and tips reported on line 5c, and Taxable wages & tips subject to Additional Medicare Tax withholding reported on line 5d by the excess transit benefits for all four quarters of 2015.
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.
Paylocity clients should work with their Account Managers to provide any adjustments as soon as possible to allow enough to include any adjustments in their year-end tax filings.
Similar to prior years, late-breaking tax changes have been announced with little time to react. Many changes require employers to make adjustments at an already very busy and hectic time of year. At Paylocity, we work to keep you informed of late breaking changes. Our staff of account managers and trained tax professionals can assist you in understanding how these changes impact your business and most importantly, your employees.
Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.