In Revenue Ruling 2014-32, the IRS provided guidance on the use of smartcard, debit or credit cards, or other electronic media to provide transportation fringe benefits to employees.  Such programs qualify under IRC §132 to be excluded from the income of the employee.

But what happens if, when the employee goes to use the card or device, it malfunctions, not allowing them to board the train or bus?  Quite often an employee, not wanting to be late, will simply pay for the ticket him/herself rather than attempting to resolve the matter with customer service for the transit authority, assuming that is even a possibility.  If the employee asks the employer to reimburse him/her for the fare, can that be excluded from the employee’s income?

Congress has reinstated the higher level of exclusion for employer provided transit benefits under IRC §132(f) the last three times the provision has expired, but did so only at or after the end of the year following the expiration of the provision. 

Employers who had structured their programs to limit their assistance to the amount that was provided for in the Code during the year in question, but which retroactively was raised by Congress, may wonder if they could make a payment to reimburse those employees who had paid additional costs out of pocket during those years and exclude them from income.  If the employers have read the explanations of these laws provided by the Joint Committee on Taxation which indicates that Congress intended to allow such reimbursements when it passed these bills, then the question becomes of even more interest.

The IRS has released a number of inflation adjusted figures for 2016 that were added by the Protecting Americans from Tax Hikes Act of 2015 in Revenue Procedure 2016-14.  With the relatively low rate of inflation, adjustments either are zero or a relatively small amount for the affected items.

The limitation for §179 expensing for 2016 will remain at $500,000, but the phase-out starting point will rise by $10,000 to $2,010,000 in 2016.

For taxable years beginning in 2016 the monthly limitation under IRC §132(f)(2)(A) for qualified transit benefits will be $255.

For taxable years beginning in 2016 the limitation on the above the line deduction of expenses for elementary and secondary school teachers will remain at $250.

As the agency did after Congress retroactively reinstated higher limits for excludable transit benefits provided by employers in the 2014 extender bill, the IRS has released virtually identical special procedures employers may use for 2015 if they have previously included excess transit benefits as taxable to employees.  The notice is required because Congress yet again retroactively restored the higher amounts, though this time the increase was made permanent.

The procedures, provided in Notice 2016-6, allow an employer to avoid the necessity of filing a Form 941-X and obtaining employee consents if the employer takes all adjustments into account on the fourth quarter Form 941.