On December 20, 2019, the “parking tax” for nonprofits was repealed. The parking tax, otherwise known as the taxation of transportation fringe benefits by nonprofit employers under Section 512(a)(7), was first brought into law with the passing of the Tax Cuts and Jobs Act (TCJA) at the end of 2017.
The TCJA rescinded a long-existing tax deduction for employers who pay commuting and parking expenses for employees. This means, if a business pays a third party for employee parking or transportation expenses, the business can no longer take a deduction for these payments as they had in the past, even though employees continue to receive a tax-free fringe benefit.
To have parity with commercial businesses, nonprofits, which generally don’t pay income taxes, still had a tax-free fringe benefit for their employees. However, nonprofits had to pay an unrelated business income tax on these amounts to obtain a similar impact as a commercial business paying more tax, since they had nondeductible expenses.
This introduced a new area of financial burden to nonprofits, who generally have limited resources compared to for-profit entities. According to the Independent Sector, the average nonprofit spent $12,000 per year to pay for the new tax on transportation fringe benefits.
The repeal of the parking tax for nonprofits is retroactive, which means it’s as if the law never existed in the first place. Any nonprofit who has paid the parking tax in the last two years should file an amended 990-T to claim a refund for the taxes paid.
Need Help?
If you have any questions about the repeal of the parking tax, contact our tax department here or call 800.899.4623 for help.
