The article below was originally published in April 2018. For the latest information on this topic, view this blog: Repeal of UBTI for Parking Benefits for Tax-Exempt Organizations.
Offering a Qualified Transportation Fringe Benefit under the Tax Cuts and Jobs Act of 2017? Here’s What You Need to Know
Qualified transportation plans permit employers to give transportation fringe benefits, such as qualified parking, transit passes and vanpooling to employees on a tax-free basis.
Prior to President Donald Trump signing into law H.R. 1, the “Tax Cuts and Jobs Act” on December 22, 2017, employer-paid parking and transit passes were generally deductible business expense.
However, beginning on January 1, 2018, the Act makes notable changes that affect qualified transportation plans:
Tax Deduction Eliminated
The Code has been amended to prohibit any deduction for amounts incurred or paid after December 31, 2017, by an employer for “qualified transportation fringe” benefits for an employee. The Act also eliminates the deduction for any expenses incurred for other transportation programs that pay for or reimburse the cost of employee travel between work and home unless necessary to ensure the safety of the employee.
Tax-Exempt Organization Commuter Benefits Subject to Unrelated Business Taxable Income (UBTI)
The Code has been amended to subject employer-paid parking and other qualified transportation benefits to the UBTI rules.
Employers may still sponsor qualified transportation fringe benefit plans. The Act makes no changes to the exclusion from wages from employees. Employees may continue to elect pre-tax salary reductions for qualified parking and transit passes (up to the regular monthly limit). However, to the extent that employees make such pre-tax elections, employers will not be able to deduct the costs of those benefits. Additionally, certain tax-exempt organizations may now have UBTI, requiring Form 990-T (Exempt Organization Business Income Tax Return) filing.
If employers are considering to replace these benefits with taxable wages, restricting pay with after-tax contributions, or replacing with deductible benefits, plan documents will need to be updated as well as other employee communications to reflect changes in benefit offerings. If you would like to know more about the recent changes to the Act and how they might impact your offerings, please reach out to your OneDigital representative today.