IRS Updates Fringe Benefit Rules for Employee Parking
Changes are in store for businesses that provide parking for their employees, through a company-owned surface lot or ramp, or with spaces leased by the employer.
Under the act commonly known as the Tax Cuts and Jobs Act (aka “tax reform”), qualified transportation fringe benefits (which includes reserved employee parking), are no longer deductible if they were incurred on or after January 1, 2018.
Prior to 2018, transportation benefits were deductible by businesses and non-taxable to employees. While employees can still exclude certain transportation benefits from taxable income, for-profit employers are no longer permitted to deduct the cost of providing those benefits. Tax-exempt organizations have a different set of rules that affect their unrelated business income tax.
However, both the nonprofit and for-profit sectors have a small window to make changes.
Act by March 31, 2019, to reduce your exposure
In December, 2018, the IRS issued interim guidance for determining the nondeductible amount of employee parking expenses. The guidance provides four steps that employers can follow to calculate nondeductible parking expenses. The first step is to identify the number of spots in the parking facility reserved exclusively for employees, since expenses allocated to the reserved employee spots are considered nondeductible.
The IRS is allowing employers until March 31, 2019, to remove or reduce the number of parking spots they reserve for their employees. Reclassifying the spots as non-reserved makes it possible that — if the primary use of the parking spots is for general public use — then an employer will not be subject to the disallowance rule.
Parking facility defined
The IRS definition of a “parking facility” includes indoor and outdoor garages, parking lots, and other areas where employees may park on or near the business premises of the employer, or on or near a location from which the employee commutes to work.
Parking expenses defined
“Total parking expenses” are all typical expenses necessary to maintain a parking facility, such as cost for repairs, maintenance, utilities, insurance, property taxes, cleaning, landscaping, parking lot attendant expenses, security, and rent or lease payments for the parking facility or a portion of rent or lease payment (not itemized separately).
Total parking expenses does not include an allowance for depreciation on a parking structure owned by the taxpayer.
How we can help
If you provide parking for employees, you will need to calculate the nondeductible amount of total parking expenses. This calculation will vary depending on whether you pay a third party for parking, or you own or lease all or a portion of a parking facility.
CLA’s tax professionals can help you make this calculation and guide you through all of your business tax planning and compliance needs. Contact us for help.