News and Insights

Internal Revenue Service Guidance on Monthly Mass Transit Benefit Increase

Tax Development Jan 14, 2015

On January 8, 2015, the Internal Revenue Service (IRS) issued guidance on the newly enacted Tax Increase Prevention Act of 2014. The IRS guidance addresses employers’ questions regarding payroll amendments for the increase in the monthly mass transit fringe benefit from $130 to $250. The new IRS administrative procedure is available to employers for tax year 2014, provided they reimburse employees for the over-collected Federal Insurance Contributions Act (FICA) tax on or before filing their fourth quarter Form 941. Employers using the special procedure are not required to obtain written statements from employees confirming that each employee did not make a claim for refund of over-withheld FICA taxes. When reporting on fourth quarter Form 941, the wages on lines 2, 5a, and 5c may be reduced for the excess transit benefits withheld for all four quarters of 2014. By using this method, employers will avoid the previous procedure for filing Form 941-X and Form W-2c. Employers that have already filed their fourth quarter 2014 Form 941 are required to use the previous 941-X and W-2c procedures for an adjustment or refund claim for 2014 excludable transit benefits. In addition, employers are also required to account for the increased mass transit benefit exclusion from wages in boxes 1, 3, and 5 on employees’ 2014 W-2 forms. Employers that repaid employees for the over-withheld FICA taxes prior to providing an employee’s Form W-2 must reduce the amount of FICA taxes withheld in boxes 4 and 6 for Form W-2. Employers who have already filed 2014 W-2 statements are required to file Form W-2c and provide the form to employees to account for the increase in the monthly transit fringe benefit.


Michael Mojabi

Mindy Mayo