Congress Fails to Extend Transit Subsidy; Employees Face Additional Taxable Income in 2012

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Under the American Recovery and Reinvestment Act (ARRA), the monthly income tax exclusion for employer-provided transit benefits and vanpooling benefits was $230, effective from March 2009 through December 2010. The Tax Relief and Job Creation Act of 2010 extended this benefit through December 2011. With the failure of Congress to act on a further extension of these benefits this year, the benefit exclusion will shrink to $125 per month effective Jan. 1, 2012.

The dollar limit decrease will have an immediate effect. Because this exclusion is determined on a monthly basis, employers must report the value of such benefits above the $125 per month exclusion as income to the employee and withhold the appropriate taxes.

Example

- Employer provides an employee with a transit pass having a monthly value of $175. Previously, the benefit was tax free to the employee. Effective Jan. 1, 2012, the employer will impute $50 per month in income to the employee ($175 minus $125 exclusion) and must withhold the appropriate taxes....

Please see full advisory below for more information.

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Tax

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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