Background
On Friday, December 19th the President signed the Tax Increase Prevention Act of 2014 into law.
Included in this law is an extension of a provision providing retroactive parity for the monthly cap allowed for transit/vanpool commuter benefits. As a result, the transit/vanpool benefit will retroactively increase from $130/month to $250/month for 2014 calendar year.
Will this help commuters?
No, not really, the action taken has no impact on the benefit in 2015 and will not help the majority of commuters for 2014 unless they elected to withhold funds above the cap. The 2015 monthly cap for commuter benefits continues at $130/month.
How does the retroactive increase work?
This provision will only help those who:
- Had their employer withhold, on a post-tax basis, above the cap of $130/month throughout 2014, or;
- Received an employer-paid commuter benefit over $130/month
Unless the IRS alters its guidance, commuters who received transit benefits from their employer, but do not fall into one of the categories above, will not benefit from the Congressional action taken.
What should employers do if they withheld post-tax deductions above the $130/month cap?
We advise employers to speak with their payroll, accounting, and tax professionals. The IRS developed an administrative procedure clarified how employers are to account for the increase in excludable benefits for 2014 and can be viewed at http://www.irs.gov/pub/irs-drop/n-15-02.pdf.