The IRS issued Notice 2016-6 to provide procedures for employers on how to actually apply transit benefit adjustments for 2015 stemming from The Protecting Americans from Tax Hikes Act of 2015 (PATH Act).  The Act retroactively and permanently reinstated parity for parking and mass transit benefits where previously mass transit benefits were limited to $130/month and parking benefits were limited to $250/month.  Details are below. W-2 Instructions

  • Employers that paid transit benefits exceeding the $130 limit must reduce the taxable wages of affected employees reported on the Form W-2 boxes for wages, tips, other compensation; social security wages; and Medicare wages, by the amount of transit benefits provided up to $250.
  • Employees may now receive a reimbursement of Social Security and Medicare taxes paid on the excess transit benefits.
  • Employers that reimburse employees for over-collected Social Security and Medicare taxes before issuing W-2s must reduce the amounts of withheld tax reported, where applicable, by the amount of the reimbursement.
  • Employers that reimburse employees after issuing the W-2s, but before filing the W-2s with the Social Security Administration (SSA) must check the “Void” box at the top of each incorrect W-2 and prepare new ones for the SSA.  The new W-2s with “Corrected” at the top should also be furnished to employees.
  • Employers that have already filed their W-2s with the SSA must file corrected versions to reflect the increased exclusion for transit benefits and reimbursements of the FICA tax.
  • Employees may recover any federal or state over-withholding with their 2015 personal income tax return filing. 
Form 941 Instructions (Employer’s Quarterly Federal Tax Return)
  • Employers that originally reported excess transit benefits as includible in gross income and withheld taxes would normally be required to file Form 941-X for each quarter to make corrections.  However, under a special rule provided in the Notice, if the employer has not yet filed its Form 941 for the fourth quarter, the adjustment can be made on Form 941 itself without filing Form 941-X.
  • Employers that have already filed the fourth quarter Form 941must still use Form 941-X.
Nyhart recommends that employers obtain the help of qualified tax advisors to assist with the details provided in the Notice.