IRS Form 941 Corrections for Retroactive Transit Pass Benefits

Briefly IRS is permitting employers to adjust the FICA wages reported on the 4th quarter Form 941 to account for previously taxed transit pass benefits that are now retroactively nontaxable.  This only applies to employers who have not yet filed their fourth quarter Form 941.

During the calendar year the amount of employer provided transit passes/reimbursements that were nontaxable were limited to $130 per month.  Any additional amounts were required to be included in the employee’s income subject to FICA withholding as well as income tax withholdings.  Due to a change in the law enacted December 19, 2014, this amount was increased to $250 retroactive to January 1, 2014.

Normally an employer would file a Form 94x to amend prior period Forms 941.  An employer would also normally be required to have a signed statement from the employee(s) stating they had filed and would not file in the future any claims with the government requesting a refund of the FICA taxes paid on this amount.

In Notice 2015-2 IRS is permitting employers to adjust the FICA wages shown on the fourth quarter Form 941 to account for the retroactive treatment.  The adjustment also requires the employer to reimburse the employees for the excess FICA taxes that were withheld from the employees’ paychecks related to this now nontaxable income.  This “employee reimbursement” must happen prior to the employer filing the fourth quarter Form 941.

If an employer has already filed the fourth quarter Form 941 OR has not reimbursed the employees for the excess FICA prior to filing the Form 941, then the employer is required to file a Form 94x under the normal procedures for amending Forms 941.

Naturally if the employer reimburses the employee the FICA taxes on this retroactive income, the employer should make sure the Forms W2 also show the corrected amounts in the FICA boxes 3-6 and use the correct taxable wages when completing the FUTA Form 940.

This Notice does not permit an employer to retroactively pay additional transit pass amounts.  It merely permits the employer the opportunity to change the status of previously paid amounts from taxable to nontaxable (up to the $120 differential).
  
This text has been shared with you courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).