A new law within the Tax Cuts and Jobs Act of 2017 taxes employee transportation benefits, such as providing free parking when others would normally pay. There are some nuances to the law, and attorneys and accountants are debating how they might affect churches, schools, colleges, and nonprofits. For example, organizations with access to ample free parking won’t likely pay any additional taxes. But ministries in crowded urban areas may wish to work closely with a tax professional to determine their tax payment.
There is some confusion as to how the law will apply in specific situations. Until the IRS provides final regulations, nonprofit ministries should consider the following:
A. If you reimburse employees for using public transportation, parking fees, or incur costs to provide employees with a parking facility, the cost to provide the benefit will be taxed as if it were unrelated business income (UBI) received by a nonprofit organization. For example, it would apply if you lease parking space for your employees, faculty, or staff, from an adjacent business and the spaces are designated for your employees’ use only. It also applies if you provide passes or tokens for employees to ride mass transportation to and from work.
A. The IRS guidance, published in December 2018, provides additional clarity for how tax-exempt organizations should account for parking as a qualified taxable fringe benefit. It seems to indicate that if the organization pays a third party for employee parking spaces, the organization will need to account for the cost of this benefit as taxable unrelated business income (UBI) to the organization. It would not include within UBI any amounts exceeding $260 per month, per employee. That amount would need to be treated as taxable income to the employee. If the cost is less than $260 per month, per employee, it would not be taxable income to the employee.
For organizations that own or lease all or a portion of a parking lot/garage, the organization will likely need to account for certain costs of any parking spots reserved for employees. This amount would not likely be included as the IRS provides guidance on calculating the value of each parking spot. Find it here.
A. Nonprofits will pay unrelated business income tax (UBIT) on any amount that exceeds $1,000/year to reimburse or offset parking or mass transit expenses for employees. The cost of parking can include maintenance, security, depreciation, and other costs incurred by a nonprofit relative to providing its own parking facility for its employees’ convenience. The UBIT rate is currently 21 percent for any amount greater than $1,000. For example, if you pay $1,200 annually to lease parking space, the 21 percent tax would apply to $200. See the IRS tax form 990-T to help compute your estimated payment.
A. Nonprofits subject to this expanded unrelated business income tax will have to file an Exempt Organization Business Income Tax Return (Form 990-T). Instructions: https://www.irs.gov/pub/irs-pdf/i990t.pdf and Form: https://www.irs.gov/pub/irs-pdf/f990t.pdf
It’s important for nonprofits to work with their tax professionals on this issue because the new law took effect January 1, 2018, and applies to taxes calculated for 2018.
For additional information, please read this article found on the Church Law & Tax website.
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The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through this process, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.
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