Parity for Mass Transit, Parking Benefits Restored for 2014, Among Other Extensions

Author: Rena Pirsos, XpertHR Legal Editor

December 23, 2014

On December 19, President Obama signed into law the Tax Increase Prevention Act of 2014 (TIPA) retroactively reinstating to January 1, 2014 more than 50 different tax benefits that expired on December 31, 2013. Four of these benefits relate to employment taxes, including the:

  • Parity for mass transit (including transit passes and vanpools) and parking benefits;
  • Work Opportunity Tax Credit, for employers that hire certain targeted employees who have faced significant barriers to employment;
  • Indian Employment Tax Credit, for the first $20K of qualified wages paid to each qualified employee working on an American Indian reservation; and
  • Employer wage credit of 20% for military reservist employees who are called to active duty (applies to employers with 50 or fewer employees).

Because these benefits will only be available for tax year 2014, Congress would have to move to extend them again to make them available for tax year 2015.

TIPA also includes provisions that define professional employer organizations (PEOs) in the Internal Revenue Code and create a voluntary certification program for PEOs within the IRS.

Parity for Mass Transit and Parking Benefits

TIPA reinstates and extends through December 31, 2014 the $250 maximum monthly exclusion amount for employer-provided mass transit passes and vanpool benefits, which had expired at the end of 2013, to match the 2014 exclusion amount allowed for employer-provided parking benefits. The expiration in parity resulted in a drop for 2014 back to the prior transit and vanpool maximum of $130.

Mass transit and parking benefits are not subject to employer withholding for federal income tax, FICA (Social Security and Medicare) tax and FUTA (federal unemployment insurance) tax. So unless the IRS quickly issues procedural guidance for making the necessary adjustments to taxes and Forms W-2, many employers will be scrambling to adjust employees' 2014 taxable wages before closing out the payroll for the year and issuing Forms W-2, Wage and Tax Statement, to all employees.

If the IRS does not act, employers that find they do not have enough time to recalculate the benefits as nontaxable before the end of the year will have the added burden of issuing scores of Forms W-2c, Corrected Wage and Tax Statement, to employees in 2015 after they have already distributed employees' Forms W-2 and filed them with the Social Security Administration.

The IRS issued guidance in 2013 when, on January 2 of that year, the American Taxpayer Relief Act (ATRA) extended the parity between tax-free mass transit and parking benefits retroactive to January 1, 2012. The IRS allowed employers to make the needed adjustments on their fourth quarter Form 941, Employer's Quarterly Federal Tax Return. At press time, the IRS had not yet indicated whether it will do so this time around.

PEOs

PEOs provide HR, benefits, tax administration, and compliance services for small and mid-size businesses. TIPA provides that PEOs can become IRS-certified by meeting certain financial requirements (including bonding and undergoing financial audits) and satisfying certain IRS reporting obligations. Once it becomes certified, a PEO would be solely liable for collecting and remitting federal employment taxes (such as FICA and FUTA taxes) for its worksite employees. This would relieve small and mid-sized businesses that enter into contracts with certified PEOs of liability for employment taxes once they remit their employees' tax withholdings to the PEO.

According to the National Association of Professional Employer Organizations (NAPEO), about 250,000 businesses use PEOs and they provide access to healthcare coverage for approximately six million people. PEOs allow employees of small businesses to access employee benefits such as 401(k) plans; health, dental, life and other insurance; dependent care; and other benefits typically provided by large companies. NAPEO notes that, according to a study, businesses contracting with a PEO experience faster growth, lower employee turnover and are much less likely to go out of business than those not using a PEO.