The American Taxpayer Relief Act retroactively increased the monthly transit benefit exclusion under the Internal Revenue Code for 2012 for transit passes and commuter highway vehicles. The available exclusion for 2012 was increased from $125 per month per participating employee to $240 per month per participating employee. In early January, the Internal Revenue Service issued a special notice addressing procedures for administering the retroactive transit pass benefit exclusion increase.
Since the increase was retroactively implemented, employers that provided transit benefits in excess of $125 per month may be able to receive a refund of FICA amounts paid on those benefits.
The special procedures apply only if an employer actually paid amounts for transit benefits (either directly or by employee salary deferrals) over the $125 limit.
If an employer has not yet filed the fourth quarter Form 941 for 2012, the employer must repay or reimburse the excess FICA tax for all of 2012 on or before filing the Form 941. The amount reported as wages (Lines 2, 5a and 5c) on the fourth quarter Form 941 can then be reduced proportionately.
If the employer has already filed the fourth quarter Form 941, the employer must use Form 941-X to make an adjustment or claim a refund for overpayments in 2012. To do this, the employer must repay or reimburse employees or refund claims and secure consents from employees.
An employer that has not issued the 2012 Form W-2 to employees should take into account the increased exclusion when calculating and reporting wages in Box 1, 3 and 5. Employers that have repaid employees for the over-collected FICA tax before issuing Form W-3 should reduce the amount of tax withholding reported in Box 4 and Box 6 of the Form W-2.
An employer that has already filed the 2012 Form W-2 will have to file a Form W-2c to take into account the increased exclusion for transit benefits.
