2016 Parking-Transit Benefits — Both reset at $255 monthly

2016 Parking-Transit Benefits

A new law makes 2016 Parking-Transit benefits equal, which can really improve the savings for both employers and  employees participating in a Parking & Transit FSA through a Section 125 Plan document. This article explains the change.

2016 tax-exclusion cap raised for mass-transit benefits; parity made retroactive for 2015

By Stephen Miller, CEBS  12/18/2015

Long-sought equalization between tax breaks for employer-provided parking versus mass-transit benefits was enacted as part of an omnibus spending and tax bill that was signed into law on Dec. 18, 2015.

In 2015, the maximum monthly tax-exclusion for money that employers spent on public-transit passes and vanpool benefits for employees fell from $250 to $130, while the exclusion for qualified parking benefits remained at $250. Beginning in 2016, the monthly maximum tax exclusion for transit or parking benefits will each be $255, subject to an annual inflation adjustment.

The U.S. House of Representatives passed the Protecting Americans from Tax Hikes (PATH) Act on Dec. 17. The Senate approved the measure on Dec. 18, folding it into the Consolidated Appropriations Act, and President Barack Obama signed the omnibus bill into law that same day.

“Many of the provisions included in the PATH Act have been extended repeatedly over the past decade,” said Kathleen Coulombe, senior advisor for government relations at the Society for Human Resource Management (SHRM). “Employers will now gain certainty related to the tax treatment of several employer-sponsored benefits. Additionally, the bill provides employers with predictability and flexibility when offering a comprehensive benefits package to their employees—a key component in retaining and recruiting a skilled workforce.”

Parity for Transit Benefits

Organizations can subsidize their employees’ commuting or parking costs with pretax dollars up to the allowable monthly limit, which results in lower payroll taxes than if they paid the money in wages. Alternatively, employees can pay for commuting or parking by having pretax dollars deducted from their paychecks through an employer benefit program, up to the allowable monthly limit.

“SHRM supports provisions that assist employers in offering a comprehensive, flexible benefits package, and transit parity [between mass-transit and parking benefit limits] would do just that,” said Coulombe. Prior to the House and Senate votes, SHRM sent a letter to all representatives and senators urging their support for the measure.

For some employers that allow workers to fund transit passes and parking with pretax dollars through a salary deferral program, the increase in the exclusion for transit benefits may have come after the close of open enrollment for 2016. Since their open enrollment selection for dollar deferrals was based on a monthly cap of $130 for transit benefits, these employees may want to increase the amount they selected to withhold each month. If they are not permitted to do so, they will have to wait until open enrollment for 2017 to take advantage of the higher cap.

Retroactive Increase for 2015

The new legislation also makes tax parity for mass-transit and parking benefits retroactive for 2015, in effect raising the tax-exclusion cap for mass-transit benefits to $250/month for that year. But in practice, for employees who fund their benefits with pretax dollars through a salary deferral program, retroactively contributing more than $130/month for 2015 could be administratively difficult.

In December 2014, tax legislation was enacted, retroactive for 2014, that reinstated the maximum monthly exclusion amount for transit passes and van pool benefits from $130/month to $250/month, so that these transportation benefits matched the $250/month exclusion for qualified parking benefits. However, under that measure, parity was allowed to expire at the end of 2014.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

Related News Article:

U.S. Transit Commuters Just Got an Early Gift for 2016, The Atlantic Citylab, December 2016

Related SHRM Article:

President Signs Omnibus Bill Altering Workplace Laws, SHRM Online Benefits, December 2015

More Cities to Require Employer-Provided Transit Benefits, SHRM Online Legal Issues, December 2015

Transit Benefit Limit Retroactively Raised for 2014, SHRM Online Benefits, January 2015

Quick Links:

• SHRM Online Benefits Topics & Strategy

Source article:  https://www.shrm.org/hrdisciplines/benefits/articles/pages/transit-parity-tax-bill.aspx