Tax season just came to a close for most taxpayers. Exception: A late-season update to the IRS’ website informs employees who had more than $125 a month withheld for qualified mass transit benefits during 2012 on how to claim a refund for their excess income and FICA taxes.
Excess transit benefits recap. For 2012, you could provide employees with up to $125 a month in tax-free qualified mass transit benefits and up to $240 in qualified employer-provided parking. So employees who had more than $125 a month withheld for mass transit benefits did so on an after-tax basis. Earlier this year, Congress equalized both benefits at $240 a month, retroactive to January 2012. After the retroactive equalization, that “excess” benefit—the amount greater than $125, up to $240 a month—was no longer taxable.
The IRS dealt with employers first. Guidance released earlier this year required employers to refund the excess FICA taxes to employees, issue Forms W-2c to them and file Form 941-X for each quarter of 2012 they were correcting. Since refunds of excess income taxes couldn’t be made after 2012 ended, the IRS noted that employees would either receive larger tax refunds or owe less taxes. The IRS has now filled in these blanks.
What to tell employees. For income tax refunds, employees who have already filed their 1040s must file Form 1040X and attach their Form W-2c to those returns. Employees who requested an extension of time to file their 1040s can claim the credit on their returns when they eventually file.
If you didn’t apply on employees’ behalf to the IRS for a refund of the excess FICA taxes, employees must file Form 843, and must write Transit Benefits in dark, bold letters across the top margin of the form. Employees must attach a copy of their W-2 or W-2c to Form 843. Excess FICA taxes can’t be claimed on their 1040s.
Employees must detail their reasons for filing their claims and compute their refunds. Reminder: In 2012, the employee Social Security rate was 4.2%. Excess FICA taxes will be refunded, up to the 2012 taxable wage base of $110,100; the Medicare tax rate is 1.45%. Employees must attach a statement from you that includes the following:
- The amount, if any, that you repaid them and the amount, if any, of the credit or refund you’re claiming on their behalf
- An acknowledgment that your statement is made to support their FICA refund claim.