The Protecting Americans from Tax Hikes (PATH) Act was included in the Consolidated Appropriations Act that was passed December 18, 2015. This legislation increases the maximum pre-tax transit and vanpooling benefit retroactively for 2015 and prospectively for 2016 and indexed for inflation thereafter. The new 2015 limit was increased retroactively to $250; equal to that of the qualified parking limit. For 2016, the transit limit has been raised to $255, matching that of qualified parking expenses.
Previously, the limit for transit passes and vanpooling benefits was set at $130 per month while the limit for qualified parking benefits was $250.
Unfortunately due to the timing of the announcement, it’s not practical for most employers to implement this fix for 2015, as transit benefits are elected on a prospective basis. Employers that offered a Transportation Plan in 2015 are able to adjust the wages for employees that may have exceeded the $130 limit to reflect this increase in the pre-tax amount they could have chosen for those months up to $250. Practically speaking, however, there’s really nothing to do at this point unless employers had already run their plan as if this increase was already in place. Employers are not required to go back and attempt to retroactively apply this adjustment.
For 2016 and after, however, employers may increase their maximum to $255. An employer wishing to adopt this increase should review their plans to make sure the wording allows for the maximum increase and inform their employees of the change.
Information contained herein is not intended to constitute tax or legal advice and should not be used for purposes of evading or avoiding otherwise applicable regulatory responsibilities as issued by the federal or state government(s) and/or taxes owed under the Internal Revenue Code. You are encouraged to seek advice from your legal or tax advisor based on your circumstances.