At Eder, Casella & Co. we strive to help keep you aware of tax law changes that may affect your organization. Congress passed in 2018 the Tax Cut and Jobs Act (“TCJA”), which is effective as of January 1, 2018. There were provisions in the law that affect tax-exempt organizations; however, the law was vague, and we were not able to determine the impact it would have on our clients until additional guidance was recently issued by the IRS.
These TCJA changes may create taxable events for tax-exempt organizations. The final determination of whether these provisions apply and whether an organization will incur a tax liability may require additional record keeping for tax-exempt organizations and additional time incurred by CPA firms to calculate and report any taxable activities. We have provided information below, to consider when determining whether such changes will affect an organization.
The primary focus for most of this information will be the TCJA changes that affect transportation and parking benefits paid by tax-exempt employers. Those provisions are:
Employer-provided parking may create taxable income, and
Transportation fringe benefits provided to employees are now taxable to the employer.
The TCJA provides that, under certain circumstances, “Qualified Parking” may create a taxable activity. This is the provision of the TCJA that could create the most challenges for our clients.
“Qualified Parking” means parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by transportation, in a commuter highway vehicle, or by carpool. Such term shall not include any parking on or near property used by the employee for residential purposes. Essentially, this means any parking provided by a tax-exempt employer, whether you own or lease your facility and regardless of whether it is free or fee-based.
For such “qualified parking,” any parking spaces reserved for employees are taxable to the employer. There is a safe-harbor provision if the organization removes such reservations and any applicable signage by March 31, 2019.
The first step in determining whether this provision is applicable to your organization is to count and provide to us:
The number of spaces reserved for employees;
The total number of parking spaces in your lot;
The total spaces used by employees during normal business hours; and
The total spaces reserved for non-employees (i.e., handicapped, expectant mothers, etc.).
Transportation fringe benefits:
Transportation benefits paid by an employer for the benefit of its employees may create a taxable event to the organization, unless such benefits are included in the W-2 wages of the employee. Such transportation fringe benefits would include:
Metra or other rail passes
Debit cards for the purpose of providing transportation benefits, or
Parking passes or a parking space in a fee-based lot.
The following are changes in the law that we do not expect to affect many of our clients. If you believe either of these changes will affect your organization, please do not hesitate to contact us for more information.
Excise tax on annual compensation of $1,000,000; and
The “silo-ing” of unrelated business activities (this applies to organizations that conduct more than one unrelated business activity).
These changes are effective as of January 1, 2018 and are therefore retroactive. For fiscal-year filers, this means that that the law changes may be applicable for that portion of your 2018 fiscal year beginning January 1, 2018 and ending with your 2018 fiscal year end.
What to do Next:
If you believe your organization will be affected by any of the above changes in the law, you can contact us to discuss the changes and how they will affect your organization. We are available to assist with compliance with the changes, including the calculation of the potential liability and the filing of the appropriate forms. Please don’t hesitate to contact us with any questions or concerns that you may have regarding this new standard, or any other matters.