True Alert: US Tax Reform – Compliance Impact of Employer-Provided Parking
That parking lot just got more expensive…
This True Alert highlights key aspects of the tax law changes resulting from the Tax Cuts and Jobs Act (“TCJA”) regarding business deductions for qualified transportation fringes (QTFs), including “qualified parking” expenses. If your company’s employees park in a lot or garage that is owned or leased by the organization, of if your company subsidizes its employee’s daily commute in another manner, then you should analyze how much of the related costs are now non-deductible post-TCJA.
Qualified Transportation Fringe (QTFs)
The TCJA added I.R.C. § 274(a)(4) to the Internal Revenue Code to disallow deductions for companies providing QTFs to employees. As defined by I.R.C. § 132(f), QTFs are costs related to an employee’s commute between their residence and place of employment, including qualified parking expenses as well as transit passes, qualified bicycle commuting reimbursement and other transportation in a commuter highway vehicle.
Parking Expenses are Deductible when Employees recognize Taxable Income
Employers are still entitled to deduct parking expenditures that are included in an employee’s taxable income. However, if the employer has an arrangement in place in which the employee’s salary is reduced on a pre-tax basis, the corresponding parking expenditures is not deductible to the employer.
To the extent an employer pays a third party for employee parking, the corresponding expenditure is not deductible. However, to the extent the parking expenditure is deemed a fringe benefit to the employee and therefore taxable, the employer is entitled to a deduction for the amount that exceeds the monthly limitation per I.R.C. § 132(f)(2). Per Notice 2018-99 the 2018 monthly limitation is $260 per month.
As a result, all taxpayers that own or lease a parking lot where their employees park will need to evaluate whether they have nondeductible expenses that will increase their taxable income or reduce their losses.
The Internal Revenue Service and Department of Treasury issued Notice 2018-99 (the “Notice”) stating their intention to issue proposed regulations clarifying how employers should determine the amount of nondeductible parking expenditures under I.R.C. § 274(a)(4). Meanwhile, the Notice provides preliminary guidance that employers may rely upon when considering a reasonable method for making this determination until such guidance is issued.
Key takeaways from the Notice:
- Taxpayers that own or lease parking facilities where their employees park may use any reasonable method to determine the amount of nondeductible expenses under § 274(a)(4). A four-step method provides preliminary guidance for determining a reasonable method.
- “Parking facilities” include indoor and outdoor garages, parking lots, or any other area where employees may park on or near the business premises when they commute to work.
- “Total parking expenses” include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately).
- R.C. § 274(e)(7) provides an exception for expenses paid for goods, services, and facilities that the taxpayer makes available to the general public. Congress previously acknowledged that a taxpayer’s customers and potential customers are members of the general public for purposes of § 274(e)(7).
TPC can help you navigate this new landscape through data analytics and technical analysis.
The team at True Partners Consulting offers a combination of highly experienced tax advisors who can help your company adopt the new challenging rules for employer-provided parking as well as other tax law changes that resulted from TCJA. We are prepared to work closely with clients to identify opportunities and to develop successful strategies to avoid the inevitable pitfalls that come with implementing various aspects of tax reform.