IRS Publication on Fringe Benefits Provides Clarity on Issues Relating to Parking and Transit
Tuesday, March 6, 2018
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, legislation initially designed to reform and simplify the Internal Revenue Code. As part of the bill, business-related deductions for various employee fringe benefits are limited or eliminated. The employer deduction for qualified transportation fringe benefits was eliminated for tax years beginning after December 31, 2017, and, for tax-exempt organizations, qualified transportation fringe benefits will be subject to a tax on unrelated business taxable income (UBIT). Qualified transportation fringe benefits are transit passes, qualified parking, qualified bicycle commuting reimbursements and transportation in a commuter highway vehicle. Different rules were applied to qualified bicycle commuting reimbursements under the legislation.
Today, the IRS released Publication 15-B, Employer's Tax Guide to Fringe Benefits for use in 2018. The Publication on page 20 outlines the tax treatment of qualified transportation fringe benefits to employees, including those provided through the use of salary reduction program. The Publication makes it clear that employees can continue to pay for parking and transit pass benefits on a tax free-basis through a salary reduction program after December 31, 2017. The Publication also states that the employer may not deduct any qualified transportation benefits, whether provided directly by the employer, through a bona fide reimbursement arrangement, or through a salary reduction program incurred or paid after December 31, 2017. The Publication does not specifically address the UBIT issue for tax-exempt organizations; but, since the Publication makes it clear that amounts reduced from salary for transportation benefits pursuant to a salary reduction program are considered qualified transportation fringe benefits, it appears likely that the IRS would take the position that the salary reduction amounts for parking and transit passes would be qualified transportation fringe benefits subject to UBIT. In addition, the Publication outlined the different tax treatment to employees and employers of qualified bicycle commuting reimbursements. Link here to the publication.
William F. Sweetnam, Jr
ECFC Legislative and Technical Director