Does my Non-profit or Business Have to Now Pay Tax on Employee Parking?

Do you provide free parking for your employees? Thanks to a change made by the Tax Cuts and Jobs Act (TCJA), this may no longer be tax free. Essentially, the TCJA amended Section 274(a)(4) to provide that expenses paid or incurred by employers to provide employee parking are (generally) no longer deductible by for-profit companies. If your organization is a non-profit and provides parking to its employees, it may now need to pay unrelated business income tax (UBIT) on the cost of that parking
benefit and report it on Form 990 –T, Exempt Organization Business Income Tax Return. Here is the detail, but it is confusing and you probably will want to call your ALSD partner or staff member to discuss how this might impact you.

Detail –

IRS Notice 2018-99 provides guidance for determining the nondeductible amount of parking expense, if your organization is a for-profit company, as well as the amount that would increase Unrelated Business Taxable Income (UBTI), if your organization if a non-profit. The appropriate method depends on whether the organization pays a third party for employee parking or if the organization owns or leases a parking facility where its employees park. If an organization pays a third party for employee parking in the third party’s parking lot or garage, the Section 274(a)(4) disallowance (foregone tax deduction for a for-profit company or amount required to be
added to Form 990T as UBTI for a non-profit) generally is calculated as the organization’s total annual cost of the employee parking paid to the third party up to $265 ($260 for 2018) per month per employee. If parking expenses amount to more than $265 per month per employee ($260 for 2018), the excess needs to be included in the employees’ income and would deductible as wages if a for-profit organization. If an organization is a nonprofit organization, then excess would be added to employees’ wages but would not be added to Form 990-T as UBTI. If an organization owns or leases all or a portion of a parking facility for its employees, IRS Notice 2018- 99 proposes a four-step method to determine the amount of UBTI. This may be used as a safe harbor until final guidance is issued.

There have been so far unsuccessful efforts to repeal this. We are following the IRS updates very closely and will keep you posted with more information as it becomes available. Please reach out to us with any questions you may have.