The IRS, through the Tax Increase Prevention Act of 2014 (TIPA), increased the 2014 monthly limit under qualified transportation plans for transit pass and vanpooling benefits. The limit was retroactively increased from $130 to $250.
Section 132 of the Internal Revenue Code provides that a qualified transportation fringe benefit may be excluded from gross income. A qualified transportation fringe is provided by an employer to an employee and includes transportation in a commuter highway vehicle between home and work, a transit pass, or qualified parking.
The amount of transportation benefits that may be excluded from income are set in the Internal Revenue Code but adjusted annually for inflation. Prior to the TIPA, the excludable amounts in 2014 were $130 for transportation/transit passes and $250 for parking. TIPA increased the $130 limit to $250, retroactively, for the entire 2014 calendar year.
Since throughout 2014 employers were operating as if the transit pass limit was $130, they now have to change the tax impact of transit pass amounts provided to employees in excess of $130. The IRS issued Notice 2015-2 explaining how to make the tax adjustment. The notice also describes the reporting requirements for Form W-2.
Employers who provided transit benefits in amounts more than $130 can take advantage of IRS relief to recognize the overage as exempt from taxation. The Notice includes a special administrative process and makes the following points:
For more details on the specific procedures for correcting transit pass/transportation payments and how to recognize amounts on Form 941 and Form W-2, click here.