As the agency did after Congress retroactively reinstated higher limits for excludable transit benefits provided by employers in the 2014 extender bill, the IRS has released virtually identical special procedures employers may use for 2015 if they have previously included excess transit benefits as taxable to employees. The notice is required because Congress yet again retroactively restored the higher amounts, though this time the increase was made permanent.
The procedures, provided in Notice 2016-6, allow an employer to avoid the necessity of filing a Form 941-X and obtaining employee consents if the employer takes all adjustments into account on the fourth quarter Form 941.
In view of the timing of the statutory change and the due dates for Forms 941 for the fourth quarter of 2015 and Forms W-2, and in order to reduce administrative burden, the Service is providing a special administrative procedure for employers that treated excess transit benefits as wages and that have not yet filed their fourth quarter Form 941 for 2015. Employers desiring to use this special administrative procedure must repay or reimburse their employees for the overcollected FICA tax (including any Additional Medicare Tax) on the excess transit benefits for all four quarters of 2015 upon or before filing the fourth quarter Form 941. The employer, in reporting amounts on its fourth quarter Form 941, may reduce the fourth quarter Wages, tips and compensation reported on line 2, Taxable social security wages reported on line 5a, Taxable Medicare wages and tips reported on line 5c, and Taxable wages & tips subject to Additional Medicare Tax withholding reported on line 5d by the excess transit benefits for all four quarters of 2015. By taking advantage of this special administrative procedure, employers will avoid having to file Forms 941-X, and will also avoid having to file Forms W-2c as discussed below.
The IRS does provide some guidance on how to avoid problems in having the adjusted Forms 941 processed.
To ensure that use of this special administrative procedure does not result in a mismatch between the total taxes reported on Form 941, line 10, Total taxes after adjustments, and the Total liability for the quarter reported on Form 941, line 14 (for a monthly schedule depositor) or Schedule B (Form 941) (for a semiweekly schedule depositor), an employer should use the following procedure. The employer should reduce the last liability of the quarter reported (that is, Month 3 on line 14 or the last liability entry on Schedule B) by the amount of the tax reduction due to use of the special administrative procedure. If the amount of the tax reduction exceeds the last liability of the quarter reported on line 14 or Schedule B, the employer should apply the amount of the tax reduction to reduce previous liabilities in reverse order until the amount of the tax reduction is completely used. Note that negative numbers must not be entered on line 14 or Schedule B.
The notice goes on to provide that if an employer has already filed its Form 941 for the fourth quarter, the employer will need to following the standard procedures of using the Form 940-X.
As well, if the employer has already provided W-2s to employees with the amounts shown as taxable the IRS provides the following instructions to be followed: Employers that repaid or reimbursed their employees for the overcollected FICA taxes after furnishing Forms W- 2 to their employees but before filing Forms W-2 with the Social Security Administration (SSA) must check the "Void" box at the top of each incorrect Form W-2 (Copy A). These employers must prepare new Forms W-2 with the correct information, and send these new Forms W-2 (Copy A) to the SSA. The employers must write "CORRECTED" on the employees' new copies (B, C, and 2) and furnish them to the employees. See the 2015 General Instructions for Forms W-2 and W-3.
Employers that have already filed 2015 Forms W-2 with SSA must file Forms W-2c, Corrected Wage and Tax Statement, to take into account the increased exclusion for transit benefits and to reflect any repayments or reimbursements of the withheld FICA tax and must furnish copies of the Forms W-2c to the employees.