Taxability of Transportation Fringe Benefits

[coleboy 2]

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 153]

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 2]

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 153]

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

Good luck.

[GBurns 20]

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.