Taxability of Transportation Fringe Benefits

[coleboy]

Hi,

I was wondering if there's any updates on this topic. Has the new law actually passed? Are tax-exempt employers now required to pay income tax on transportation fringe benefits?

Any insight is appreciated!

 

Thank you!

[Luke Bailey]

Well, coleboy, your question is very general, but I think what your talking about is the change to the qualified transportation fringe benefit rules (IRC sec. 132(f)), which was part of TCJA 2017 enacted in 2017 and (this portion) effective 1/1/2018. Generally, tax-exempts and public universities will have a 21% UBI tax, even if they have no other UBTI, for these fringes, unless they include them as taxable in employees' W-2's, which gets complicated. IRS published generous valuation rules at end of 2018 for some that will help limit tax exposure, but does not eliminated. Movement afoot in Congress to repeal this very unpopular provision.

[coleboy]

Hi Luke, I was unaware of this change until a client brought it to our attention. Of course this client is a tax-exempt client so was worried about the tax consequences. They currently have a  fringe benefit plan that allows for employees to pay for their transportation expenses on a pre-tax basis. They are considering stopping the plan because of these new rules. Can you point to these "generous valuation rules"?

Their plan was in place during 2018 so I'm wondering if they paid the tax.

 

Thank you.

 

 

[Luke Bailey]

coleboy, IRS Notice 2018-99. Very generous if your employees park on premises you own.

Good luck.

[GBurns]

I found this Summary which explains IRS Notice 2018-99 from the employer's perspective in simpler terms.

https://www.thetaxadviser.com/issues/2019/apr/qualified-transportation-fringe-benefit-loss-deduction-tax-reform.html

I seems that employees can no longer use salary reduction to reduce their costs. I thought  that TCJA meant "Tax Cut", as in Reducing Taxes but in many cases I am seeing a Tax Increase. Removing the pre-tax benefit eliminates this tax deduction for employees and reducing the deductability as an expense is an increase in taxation for the employer. 

[Luke Bailey]

On ‎11‎/‎9‎/‎2019 at 11:22 PM, GBurns said:

I found this Summary which explains IRS Notice 2018-99 from the employer's perspective in simpler terms.

https://www.thetaxadviser.com/issues/2019/apr/qualified-transportation-fringe-benefit-loss-deduction-tax-reform.html

I seems that employees can no longer use salary reduction to reduce their costs. I thought  that TCJA meant "Tax Cut", as in Reducing Taxes but in many cases I am seeing a Tax Increase. Removing the pre-tax benefit eliminates this tax deduction for employees and reducing the deductability as an expense is an increase in taxation for the employer. 

FYI, last week Congress repealed the "parking tax" for tax-exempt and state university/college employers, effective back to 1/1/2017 (so as if never applied, except for all the spilt ink). No change for taxable.

Section 302 of the Further Consolidated Appropriations Act, 2020, H.R. 1865.  Page 1769 of the 1770 page bill accessed through this link.

 

SEC. 302. REPEAL OF INCREASE IN UNRELATED BUSINESS

12 TAXABLE INCOME FOR CERTAIN FRINGE BEN13

EFIT EXPENSES.

14 (a) IN GENERAL.—Section 512(a) is amended by strik15

ing paragraph (7).

16 (b) EFFECTIVE DATE.—The amendment made by this

17 section shall take effect as if included in the amendments

18 made by section 13703 of Public Law 115–97.

[TPApril]

Can parking costs be deduced from payroll on a pre-tax basis?  Is there a limit?

If so, is it required to be part of a FSA?