Retroactive changes to transportation benefits may impact taxable wages for 2015
Under federal law, employers are not required to offer transportation benefits or have a qualified transportation program. Several major metro areas have local ordinances that do require employers to provide these benefits for employees working in those cities. Some cities require that employers have a written plan document and impose stiff fines for noncompliance. If you do offer a transportation benefit program, you need to review it to determine if you need to take any action due to a recent change in the law.
The Consolidated Appropriations Act of 2016 (the “Act”) retroactively changed the rules for transportation benefits. Prior to the Act, employees could only exclude a total of $130 per month for transit passes and commuter highway vehicle benefits in 2015. The maximum allowable exclusion for qualified parking was $250 per month. Now, the excludable aggregate amount for transit passes and commuter highway vehicle benefits is the same as for qualified parking. This change is retroactive and is effective as of January 1, 2015. Because the Act is retroactive, employers may need to reduce 2015 taxable wages for affected employees.
The Act does not mandate that employers provide additional transit benefits to their employees for 2015 and employees cannot retroactively increase their compensation elections. Therefore, if an employer only provided benefits of $130 per month for transit passes in 2015, then the employer should not need to make any changes. Alternatively, if an employer offered its employees transit benefit that exceeded the previous excludable limits, then it may need to evaluate if it needs to reduce includable wages for 2015. For example, if you provided an employee with monthly transportation benefits of $250 per month last year and that employee used the full amount for transit passes, $120 would have been includable as taxable income. Under the Act, you may need to reduce that employee’s taxable wages in accordance with the revised amounts allowable for transit passes in 2015.