IRS Explains Reporting for Retroactive Increase in 2012 Qualified Transportation Benefits

As reported in our last edition of Compliance Corner, the American Taxpayer Relief Act of 2012 (ATRA) was passed on Jan. 2, 2013, avoiding the fiscal cliff. As part of that legislation, retroactive effect was given to the transit parity rule, which essentially raised the combined transit pass/vanpooling limit to $240 from $125.

On Jan. 16, 2013, the IRS released Notice 2013-8. This notice explains how employers may correct FICA tax overpayments resulting from the higher 2012 limit and report the proper amounts of income and tax on Forms 941 and W-2. This guidance only affects employers that provided 2012 transit benefits in excess of the old limit of $125.

Employers that treated transit benefits in excess of the old limit as wages and have yet to file their quarterly tax return (Form 940) for the fourth quarter of 2012 can make adjustments to that form before it is filed. If that quarterly return has already been filed, the employer will need to amend that return by filing a Form 941-X. Furthermore, employers in both cases can adjust the amount reported on the employee’s Form W-2 reflecting the higher transit limit, thereby reducing wages reported.

IRS Notice 2013-8