The Tax Cuts and Jobs Act (TCJA) eliminated the deduction for qualified transportation fringe benefits (including employee parking), which are excludible from an employee’s wages. Additionally, TCJA requires tax-exempt organizations to treat qualified transportation fringe benefits as unrelated business taxable income (UBTI). On Dec. 10, the IRS issued Notice 2018-99, which provides guidance on how to compute the amount of the expenses for employee parking fringe benefits that is nondeductible under Section 274 and the amount treated as an increase in UBTI under Section 512.
Amounts that increase UBTI under Section 512(a)(7) are included in applying the $1,000 threshold for filing Form 990-T.
Tax-exempt organizations still are hoping for a full repeal of tax on fringe benefits.
Employee parking
The IRS announced plans to release regulations regarding the nondeductible portion of qualified transportation fringe benefit expenses and the calculation of increased UBTI attributable to qualified transportation fringe benefits. Notice 2018-99 states that, until the regulations are released, employers should use any reasonable method consistent with guidance provided in the notice to compute the amount of employee parking expense that is nondeductible to an employer or that increases UBTI. The notice provides the following guidance for determining nondeductible expenses. The rules for determining the increase in UBTI are similar.- If a taxpayer pays a third party for employee parking spots:
- The nondeductible amount paid for employee parking generally is equal to the amount paid to the third party. However, if the amount paid per employee is greater than the monthly limitation for exclusion from an employee’s income under Section 132(f) ($260 for 2018), the excess paid per employee must be treated as taxable compensation to the employee. The employer can deduct any amounts included in taxable employee compensation.
- If a taxpayer owns or leases all or a portion of a parking facility:
- The taxpayer may use any reasonable method to determine nondeductible expenses. The method for computing the nondeductible portion of the expense for employee parking is deemed reasonable if computed under a four-step process (based on expense, regardless of value):
- Multiply the percentage of spots that are reserved for employees (as designated by signage or limited access) by the total parking expenses to determine the amount disallowed for reserved employee parking. Taxpayers with reserved employee spots may retroactively change their parking arrangements through March 31, 2019, in order to reduce the number of reserved employee spots as of Jan. 1, 2018.
- Determine the primary use (greater than 50 percent use) of the remaining spots. Primary use is tested using a reasonable method during normal business hours on a normal business day. If the primary use of the remaining spots is for use by the general public (including customers, clients, visitors, patients, students, and congregants), the entire amount of remaining parking expenses are fully deductible.
- If the primary use of reserved spots is not to provide public or employee parking, the employer may calculate and treat as deductible any expenses attributable to reserved nonemployee use.
- Any parking costs remaining after the first three steps should be allocated between deductible and nondeductible expenses based on a reasonable application of the primary use test. For example, if 80 percent of the remaining spots are determined to be used by employees on a typical day, then 80 percent of the remaining parking costs would be nondeductible.
- A parking facility includes indoor and outdoor garages or structures as well as parking lots that are on or near the business premises of the employer or from which an employee may commute to work.
- The taxpayer may use any reasonable method to determine nondeductible expenses. The method for computing the nondeductible portion of the expense for employee parking is deemed reasonable if computed under a four-step process (based on expense, regardless of value):
Amounts that increase UBTI under Section 512(a)(7) are included in applying the $1,000 threshold for filing Form 990-T.
Estimated tax relief for tax-exempt organizations
In Notice 2018-100, the IRS provides that tax-exempt organizations that provide qualified transportation fringe benefits and that were not required to file a Form 990-T for the tax year before their first year ending after Dec. 31, 2017, will not be subject to estimated tax penalties related to inclusion of the qualified transportation fringe benefits in UBTI if they timely file the Form 990-T and timely pay the amount due.Tax-exempt organizations still are hoping for a full repeal of tax on fringe benefits.
