The 2017 Tax Cuts and Jobs Act (“the TCJA”) was passed in late December 2017. It was primarily focused at individuals and for-profit entities, but it significantly affected nonprofits, too.
The biggest effect on nonprofits is that certain transportation benefits that were formerly non-taxable will now be taxable to either the nonprofit or to the employee. As we discussed in previous articles, these transportation benefits include:
- Expenses paid by a nonprofit for employee bus passes, van pools, parking passes/reimbursements, and bicycle commuting reimbursements; and
- Expenses associated with any parking facility owned or leased by a nonprofit organization that is used to provide employee parking.
This article focuses on the second bullet: parking provided by nonprofits for employees.
Under the TCJA, nonprofits that provide parking to employees are generally going to be required to pay tax on the cost of that benefit (assuming the value of the benefit is not included as compensation to the employee). Just like with other types of taxable income, the tax on this benefit will be required to be paid by filing a Form 990-T (if the benefit is over $1,000 in total).
The TCJA did not give specific guidance as to how to calculate the amount of benefit subject to tax. But in December 2018, the Internal Revenue Service issued Notice 2018-99 (“the Notice”) which provides some additional guidance.
The Notice states that any reasonable method may be used to calculate the costs associated with the parking facilities. The Notice goes on to provide a four-step method to allocate those costs between taxable employee parking and non-taxable parking that is open to the public:
- Calculating the number of reserved employee parking spots;
- Determining the primary use of the remaining non-reserved parking spots;
- Calculating the allowance for reserved non-employee parking spots; and
- Determining parking lot remaining use and taxable expenses attributable to employee parking.
As you can see, the four-step process is quite involved. The Notice provides ten examples covering a variety of scenarios.
The Notice makes it clear that any costs related to the parking facilities must be tracked and included in the costs allocated above, including costs like rent, repairs, maintenance, insurance, property taxes, cleaning, security, interest, utilities, trash removal, parking lot attendant expenses, and landscaping. Therefore, additional record-keeping will be required to track these costs. However, the Notice states that depreciation is not included as it is an allowance for the wear and tear on the property, not a parking expense.
Nonprofits will have until March 31, 2019, to make certain changes in parking lot usage (like eliminating employee-reserved parking spots) which could affect the amount of tax due. If made by March 31, 2019, these changes would be retroactive to January 1, 2018 (the date the new tax takes effect).
Nonprofits continue to hope for a full repeal of the tax on these fringe benefits, but so far, a repeal has only been discussed by Congress.