[March 16, 1999]

Changes to the Federal tax laws governing employee-paid transportation expenses permitted employers to establish payroll deductions for eligible parking, transit and vanpooling expenses on a pretax basis. Because the Federal tax law changes, however, were not adopted by the State of California, 1998 is the first year in which the gross amounts reported on an employee's W-2 form for Federal wages (Box 1) and State wages (Box 17) are different.

For those employees who had pretax transportation deductions in 1998, their W-2 reflects the different Federal and State grosses. Consequently, the California Franchise Tax Board's (FTB) Telefile phone system will not allow a taxpayer to utilize this method for filing his or her State income tax return. If you were previously eligible to file via Telefile and cannot do so this year, you must file by paper or use the electronic method.

This problem was recently brought to the attention of the FTB. It is unlikely that the FTB will be able to make any changes for the1998 tax year; however, we have requested that the FTB modify its Telefile system for tax year 1999 reporting.

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