The nonprofit parking tax is a tax on the amount paid or incurred for providing parking benefits to employees. Not‐for‐profits will need to file the 990‐T to report the unrelated business income that is not really income; it is an expense. Although there has been an effort to repeal the tax, it has not happened yet.
Many people thought the tax applied only to those employers who paid a third party to provide parking for its employees (like parking garages in cities), but it is also for employers who own or lease a parking facility where employees park (even rural areas are impacted). The tax is based on the expenses of providing parking for employees (not on fair market value).
Before the new law, an employer could cover up to $260 of the cost of the employee’s monthly parking expenses. If the benefit was over $260, then the employee would recognize income for this fringe benefit. Under the new law, the not‐for‐profit is subject to a 21% tax rate for the amount paid for this fringe benefit.
If an organization pays a third party to provide parking for its employees, the tax is based on the amount paid to the third party. If an organization owns or leases a parking facility, they may use any reasonable method to determine the tax.
In order to calculate the parking tax, first determine the total parking expenses. Parking expenses include rent or lease payments, repairs, maintenance, utilities, insurance, snow removal, landscaping, etc. Depreciation is not a parking expense and costs to pave or construct a parking lot are not parking expenses.
There are two exceptions to the nonprofit parking tax.
- The first exception is for the amount that is included in the employee’s income. Treat the benefit as compensation and the tax burden is passed to the employee.
- The second exception is for parking provided to the general public. Remove your reserved spots; if more than 50% of parking is provided to the general public, then the tax can be avoided. This is referred to the “50% primary use rule” for general public parking.
There is also relief in the fact that if your parking expenses are less than $1,000 for the year, then you do not need to file the 990‐T.
In Notice 2018‐99 (http://www.irs.gov/pub/irs‐drop/n‐18‐99.pdf) the IRS provided guidance about how to determine the amount of parking expense when providing parking for employees.
This Notice uses a 4‐step safe harbor methodology to calculate the parking UBI:
- Calculate the disallowance for reserved employee spots.
- Determine the primary use of the remaining spots. If not meeting 50% threshold for general parking, then go on to step three.
- Calculate the allowance for reserved nonemployee spots. These are usually “visitors only” spots.
- Determine the remaining use and allocable expenses.
As your tax professional prepares your Form 990 and possibly Form 990‐T, they may request your assistance in compiling parking expenses and determining reserved parking spots. If you still have questions or concerns, YHB is here to assist you.
READY TO TALK TO AN EXPERT? CONTACT OUR NOT-FOR-PROFIT & GOVERNMENTAL SERVICES TEAM.
About the Author
Olivia graduated with a Bachelor’s degree in Accounting in May 1998 from Bridgewater College. She joined the firm in June 1998. During her time with the firm, her focus has been on private schools, religious organizations, associations, colleges, foundations, private foundations museums, and other nonprofit entities. She holds two Not-for-Profit certificates – one in Nonprofit Management sponsored by UVA and one through the AICPA.