For 2012, you could provide employees with up to $125 a month tax-free in qualified mass transit benefits and up to $240 in qualified employer-provided parking. Until, that is, Congress upped the ante by equalizing both benefits at $240 a month, retroactive to the beginning of 2012.
Upshot: If you provided more than $125 a month in mass transit benefits during 2012, that “excess” benefit was legitimately taxable. However, it became nontaxable, as of January 2013. The IRS has clarified how to deal with FICA adjustments on the excess benefit. (Notice 2013-8, IRB 2013-7)
FICA refunds only. Only adjustments for overwithheld FICA taxes may be made. It’s too late to refund employees their overwithheld income taxes, since refunds of overwithheld 2012 income taxes had to be made by Dec. 31, 2012. Employees will get larger income tax refunds or owe less tax when they file their 2012 1040s.
Since you’ve filed your fourth-quarter Form 941, the IRS stressed that the normal Form 941-X procedure applies to these FICA adjustments: File Form 941-X for each quarter of 2012 you’re correcting. You must repay or reimburse employees, or (for refund claims) get their consent to file a claim on their behalf before you file Form 941-X. Then file Form 941-X by April 30.
W-2 corrections. Employees’ 2012 W-2s must also be corrected. If you haven’t e-filed your W-2s with the Social Security Administration (e-filed forms are due on April 1) and you repaid or reimbursed employees for the excess FICA taxes, check the Void Box at the top of each incorrect W-2 (Copy A) and prepare new W-2s for employees with the word “CORRECTED” written on the top of copies B, C and 2. File the corrected Copy A by April 1. If you’ve already filed your W-2s, issue Forms W-2c to employees to take into account the decreased FICA taxes.
PAYROLL PRACTICE TIP: Pre-empt employees’ confusion about receiving a new W-2 or a W-2c form by including a memo explaining the adjustment.