Repeal Of “Nonprofit Parking Tax” Signed In To Law, Eliminating Income Tax On Expense Of Providing Parking And Transportation Benefits To Employees

CATEGORY: Private Education Matters
CLIENT TYPE: Private Education
DATE: Feb 03, 2020

LCW previously reported that the 2017 Tax Cuts and Jobs Act included a remarkable and confusing new tax on certain parking and transportation benefits provided by nonprofits, including schools, to their employees.  Specifically, the Act added section 512(a)(7) to the Internal Revenue Code (IRC), imposing a 21 percent unrelated business income tax on qualified transportation fringe benefits, including the provision of parking to employees.  In other words, the Act created an income tax on the expense of providing basic transit and parking benefits to nonprofit employees, which some called the Nonprofit Parking Tax.

The week before Christmas 2019, both the House of Representatives and the Senate passed a bipartisan tax bill to strike the Nonprofit Parking Tax retroactively, as if it never existed.  The bill was part of a larger spending package, which the President subsequently signed into law, officially eliminating this confounding and administratively burdensome tax.  The repeal was the result of a sustained and extensive effort by organizations across the nonprofit sector to advocate for the elimination of this tax since its enactment in late 2017.

The repeal intends to eliminate the compliance challenges and administrative burdens associated with attempting to figure out how to pay an income tax on an expense.  Additionally, since the bill is retroactive, schools that have filed returns paying the tax for 2018 may amend those returns to obtain refunds.  The IRS is also expected to provide further guidance on the refund process.