Changes With Parking for Employees – It May Impact Your Taxes
The Tax Cuts and Jobs Act contained various provisions that will impact businesses and even tax-exempt organizations of all sizes in multiple ways. One notable change is how qualified taxable fringe benefits (QTFs) for parking and other transportation related expenses are treated. The new restrictions may mean that your company will no longer get a deduction for certain non-business expenses such as parking provided to employees. For tax-exempt organizations, these once “tax free” fringe benefits provided to employees, will now be a component used in calculating unrelated taxable income (UBI).
These new rules were effective January 1, 2018 regardless of the business or tax-exempt organization’s fiscal year-end. Notice 2018-99 Provides interim guidance for taxpayers to determine the amount of parking expenses for QTFs that is nondeductible under §274(a)(4) and for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (UBTI) under §512(a)(7) attributable to the nondeductible parking expenses.
What is “Qualified Parking”?
Qualified parking is defined as parking:
- Provided to an employee on or near the employer’s business premises or on or near a location from which the employee commutes to work;
- Includes indoor and outdoor garages, as well as other parking and surface lots;
- Does not include any parking that is used by the employee for residential purposes.
Do the New Rules Affect Your Business or Organization?
If you can answer “yes” to either of the following questions, your business may have nondeductible parking expenses, or your organization may have reportable UBI:
- Does your business/organization pay a third party for employee parking?
- Does your business/organization provide parking to employees on owned or leased property?
- Does your business/organization reimburse the employee for parking expenses?
The Department of the Treasury and the Internal Revenue Service intend to publish proposed regulations that will include guidance on the determination of nondeductible parking expenses and the calculation of increased UBTI attributable to QTFs. Until such guidance is issued, businesses and tax-exempt organizations that own or lease parking facilities where their employees park may use any reasonable method as provided in the Interim Guidance on QTF Parking section of the notice to determine the amount of nondeductible expenses under section 274(a)(4) or the amount of the increase in UBTI under §512(a)(7).
What Types of Costs are Included as Parking Expenses?
The following expenses used in the allocation to calculate the nondeductible parking or the portion subject to UBIT include, but are not limited to:
- Repairs and maintenance
- Utility costs, insurance, property taxes, and interest
- Snow and ice removal, leaf removal, trash removal, cleaning, and landscape costs
- Parking lot attendant expenses and security
- Rent or lease payments or, if it’s not specific in your agreement, a portion of a rent or lease payment
Depreciation is not included in the definition of parking expenses and will remain fully deductible.
What Additional Guidance Are We Still Waiting on?
Stay tuned as there are many items that still need clarity regarding the new changes with QTFs for parking. The following are among some of the larger items we anticipate the regulations will include guidance on:
- What if a lease fails to include an amount allocated to a parking facility?
- What about when a lease allocated zero to the parking facility?
- What if the parking available is for several unrelated business’?
- How is parking for business use vehicles treated?
If you have additional questions or need our assistance in determining your business or organization’s exposure, please do not hesitate to contact us.