On December 18, President Obama signed the Protecting Americans from Tax Hikes Act of 2015 (PATH) into law which included a permanent extension of pre-tax mass transit parity with parking limits. The pre-tax mass transit limits are now permanently set as equal to the pre-tax parking limits.
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 change is retroactive for 2015. So as a result, the allowable pre-tax mass transit limit for 2015 increased from $130 to $250 per month. The monthly mass transit limits for 2016 will also increase to $255 per month. In order to take advantage of the retroactive increase for 2015, participants would have needed to elect the full cost of their transit expense.
Any amounts taken as a post-tax deduction in 2015 can be reclassified as pre-tax up to the new limit of $250 per month (a difference of $120 per month). Employees are prohibited from retroactively increasing their 2015 elections to use the higher transit benefit limit. Employees also cannot take additional withholding in 2016 to pay for 2015 transit expenses.
For 2016, pre-tax mass transit election limits automatically increase to $255 per month. If participants were not previously electing the full cost of their transit expense, they should consider increasing their election to take advantage of the additional pre-tax transit benefit.