02.15.16 |
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The Legislative Updates to Employer-Provided Mass Transit and Parking Benefits

passenger bus

Last December, President Obama signed into law an omnibus spending bill called the Consolidated Appropriations Act (the Act) which changed a number of tax provisions as they relate to both employers and employees.1 Following the passage of the Act, the Internal Revenue Service (IRS) issued Notice 2016-6 on January 11, 2016, which provides guidance on how the provisions within the Act apply to businesses.2

One of the major updates that resulted from the Act was the permanent parity created between the transit/carpooling benefit exclusion for employer-provided transportation and the exclusion for qualified parking. The Act provides that transit parity with parking “shall apply to months after December 31, 2014.” Consequently, the transit parity is effective back to benefit months beginning on or after January 1, 2015.

For 2016, the amount of both types of exclusions is $255 per month. For 2015, it is important for employers to review the IRS’s guidance in the Notice and determine if, and how, the retroactivity applies to their particular situation and whether their employees will be able to take advantage of the associated tax benefits.3

The details of retroactively claiming these increased transit benefits get a little murky when considering employees who use a salary deferral program that deducts transit benefits tax-free directly from their paychecks. The increase in the amount employees can exclude might have occurred after their open enrollment deadline closed, meaning that some workers might need to wait until open enrollment in 2017 in order for this increased cap to kick in.

According to SHRM, the Act also creates certainty for employers about how taxes affect other sponsored benefits.4 It’s crucial for employers to keep track of these tax provisions and how they might affect their business or employees in 2016 – or the benefits that can be retroactively claimed for 2015. Managing the updates that stem from legislation like this can help businesses save money and reduce the risk of being penalized for noncompliance.

 

Learn More About ADP SmartCompliance® Tax Credits

 


The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of any such professional. Such information is by nature subject to revision and may not be the most current information available.

1H.R.2029 – Consolidated Appropriations Act, 2016 – https://www.congress.gov/bill/114th-congress/house-bill/2029/text
2,3Application of Retroactive Increase in Excludable Transit Benefits Notice 2016-6 – https://www.irs.gov/pub/irs-drop/n-16-06.pdf
4Law Makes Tax Breaks Equal for Parking & Transit Benefits – https://www.congress.gov/bill/114th-congress/house-bill/2029/text


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