Earlier this month, the Internal Revenue Service released Notice 2015-2, containing new guidelines to assist employers in making retroactive adjustments for 2014’s employer-provided excludable transit benefits.
Notice 2015-2 permits employers to use Form 941, Employer’s Quarterly Federal Tax Return, when making their retroactive adjustments for excludable transit or parking benefits accumulated over each quarter in 2014, provided they already have not submitted the Form 941 for fourth-quarter 2014.
This new guidance opens an alternative method for employers wanting to avoid filing the excludable amounts with the Adjusted Employer’s Quarterly Federal Tax Return (Form 941-X) and Corrected Wage and Tax Statement (Form W-2c). Normally, both the 941-X and W-2c need to be filed each quarter in order to adjust for the retroactive increase. Although Notice 2015-2 brings relief for some, an organization cannot take advantage of the procedures in Notice 2015-2 if they already have filed their fourth-quarter Form 941.
In order to take advantage of the alternative procedure, employers first must repay their employees for overcollected Federal Insurance Contributions Act (FICA) tax – including any Additional Medicare Tax – on the excess transit benefits for all four quarters of 2014 on or before filing the fourth-quarter Form 941.
After their employees are reimbursed, employers can claim their share of FICA taxes paid over the course of the year. To do so, the employer will reduce each of the following amounts on the fourth-quarter Form 941 by the total excess transit benefits for all four quarters of 2014:
- Line 2, fourth-quarter wages, tips and compensation;
- Line 5a, taxable Social Security wages;
- Line 5c, taxable Medicare wages and tips; and
- Line 5d, taxable wages and tips subject to Additional Medicare Tax.
Notice 2015-2 also states that employers are not required to obtain written statements from their employees guaranteeing they will not make an additional claim for a FICA refund.
In December, President Barack Obama signed into law the Tax Increase Prevention Act, which included the 2014 retroactive measure to neutralize the disparity between transit benefits at $130 a month and parking benefits at $250 a month.