The Internal Revenue Service (IRS) has posted additional procedures explaining how employers and employees can obtain refunds of overpaid federal income, Social Security and Medicare (FICA) taxes after the 2012 transportation fringe benefit limits were retroactively increased by the American Taxpayer Relief Act (ATRA) of 2012.
2012 Limitation Amounts
Before ATRA, the maximum amount that could be excluded from an employee's taxable income for employer-provided benefits for transportation in a commuter highway vehicle and transit passes for 2012 was $125 per month. ATRA nearly doubled the maximum exclusion for these benefits to $240 per month retroactive to January 1, 2012. The exclusion applies whether the employer paid for the benefits out if its own funds or the employee paid for the benefits through salary reductions.
IRS Notice 2013-08
As a response to ATRA, the IRS issued Notice 2013-08 to provide guidance to employers on how to account for the retroactive change when filing Form 941, Employer's Quarterly Federal Tax Return, and Form W-2, Wage and Tax Statement. The notice provided a special administrative procedure that allowed employers to account for the increased excludable transit benefits they provided in 2012 on their fourth quarter 2012 Form 941.
Employers could only use this procedure to the extent that they repaid or reimbursed their employees for the employee share of the FICA taxes prior to filing their fourth quarter Form 941. By taking advantage of this special procedure, employers avoided having to file Forms 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, for the first three quarters of 2012.
Updated IRS Procedures
Employers that did not take advantage of the special procedure outlined in Notice 2013-08 must follow the IRS's additional procedures to correct their Form 941 for each period.
Employers also should consider notifying employees who received transit benefits exceeding $125 per month in 2012 and had federal income, Social Security, and Medicare taxes withheld from the benefits that they may be entitled to a refund of the tax withheld on the portion over $125, up to $240 per month. The IRS's additional procedures explain how employees may obtain this refund.
Payroll > Taxation of Employee Compensation > Qualified Transportation Fringe Benefits
Payroll > Depositing and Reporting Withheld Taxes > Forms Used to Make Adjustments, Corrections, and to Receive Tax Credits and Refunds