Tax Law Impact on Transportation Fringe

 

Will nonprofits being paying tax on transportation fringe? Mike Sorrells, Tax Principal at Tate & Tryon, and Rick Cohen, COO at National Council of Nonprofits, discuss the impact of the new tax law on transportation benefits and how it effects nonprofits and their employees.

The New Tax Law and Tax on Transportation Fringe

The new law stipulates that transportation fringe benefits are non-deductible expenses to for-profit corporations. Congress felt nonprofits should be on parity with for-profits. But since most nonprofits don’t pay tax and would not have the elimination of a tax deduction, Congress determined that nonprofits should add transportation fringe expense to taxable unrelated business income. A new subsection to the unrelated business income section of the Internal Revenue code 512(a)7 was added clarifying this determination.

Impact on Nonprofits and their Employees

The impact is that if nonprofits are paying for parking or transit on behalf of their employees, nonprofits will pay tax on those payments unless they pass it on to employees as taxable income. Tax is calculated at 21%; plus there may also be related state and local tax.

A few exceptions to note are that when an organization owns or rents a building with included parking spaces, any spaces given out for employee use will not be considered a taxable event since no payments are specifically being made for the spaces.

Effective Date

Changes are effective January 1, 2018.  Nonprofit employers should look at historical payments for transportation fringe and estimate current year expenses in order to calculate and make estimated tax payments. Nonprofits should contact their CPA or accountant to make sure they know how to appropriately comply with the new law.

2018-04-04

 

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