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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