Editor’s note: Effective December 20, 2019, nonprofit parking and transportation benefits will no longer be counted as unrelated business taxable income. This full repeal was part of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 and is retroactive for 2018 and 2019.
Tax reform’s new treatment of qualified parking fringe benefits for employees impacts both businesses and nonprofits. Prior to 2017, an employee could exclude up to $255 per month of employer-provided parking as a qualified transportation fringe (QTF) benefit and the employer could deduct 100 percent of the expense. Now, the employee exclusion remains, but this amount must be included by the employer as a nondeductible business expense or, in the case of tax-exempt organizations, counted as unrelated business taxable income (UBTI).
This calculation will vary depending on the manner in which an employer covers the cost of employee parking. Recently, the American Institute of Certified Public Accountants (AICPA) offered comments and recommendations to the IRS on how to clarify parking expense calculations, which we recap below. As we await final regulations from the IRS, your RKL advisor can help assess the tax impact on your unique parking approach.
Employer pays for employee parking in a third-party lot or garage
In this case, the nondeductible business expense or UBTI is limited to the lesser of the total cost or the monthly exclusion limit of $265 per employee per month (for 2019). The AICPA requested that future regulations acknowledge two paths under this scenario – the employer pays a third-party for assigned parking and the employer pays a third-party for a general group of parking spots. This distinction is important for the purposes of parking attribution and cost calculation.
Employer owns or leases parking spots or entire facility for employee use
In its initial guidance, the IRS permitted employers to use “any reasonable method” to calculate taxable parking expenses and established a process to determine safe harbor. The AICPA noted that this approach falls short in capturing all of the potential scenarios under an ownership or lease agreement and recommends a number of corrective enhancements to the regulations, including:
- More specific methods to determine parking expense when not allocated in lease agreement (like comparative lease analysis, value of leased building with and without parking, and use of market rate for parking)
- General public use threshold should be determined by dividing only the spots used by employees by the total parking spots available to all tenants
- Use of a snapshot method with a weighted average to determine parking usage in a multi-use facility
- Ability to aggregate all employee spots if multiple facilities fall within a single geographic location
As the IRS continues to solicit and consider feedback, we expect this guidance to evolve. Just like all outstanding regulatory issues stemming from tax reform, RKL will monitor the conversation around tax treatment of parking benefits and provide ongoing updates. In the meantime, employers with questions about one of the above scenarios or their unique parking situation should contact their RKL advisor or one of our local offices.