by John Kammerer
On December 10, 2018, the IRS issued Notice 2018-99 that provides interim guidance for calculating the nondeductible portion of parking expenses provided to employees. This new requirement is a result of changes made as part of the Tax Cuts and Jobs Act (TCJA).
These rules will affect any taxpayer providing qualified transportation fringe benefits to their employees including reimbursing or paying a third party for parking or providing parking for its employees in a “facility” owned or leased by the taxpayer. To understand the impact of these rule changes on tax-exempt organizations, please reference the article “New Guidance Will Require More Nonprofits to Pay UBIT.”
To determine the impact of the new parking rules, taxpayers will need to determine the associated costs of “parking facilities” provided to their employees and will need to separate them out between amounts paid to third parties and amounts owned or leased by the taxpayer.
The parking expenses that need to be included in the calculation include, but are not limited to, property taxes, repairs, maintenance, utilities, insurance, security, and other expenses directly related to the lot. Depreciation is not considered a parking expense for the purposes of these rules.
Parking facilities include indoor and outdoor garages as well as other parking lots and areas where employees can park on or near the premises of the employer or a location from which the employees commute. If parking facilities are located in a single geographic location, the expenses can be combined for purposes of the fringe benefit calculations. The nondeductible expenses for parking in different geographical locations must be calculated separately.
The notice provides that any reasonable method can be used for determining the disallowed parking fringe benefit for employer-provided parking. The notice provides a safe harbor to follow for determining the amount as outlined below.
If you pay a third party for employee parking, you generally calculate the disallowed expense as the aggregate amount paid to the third party for all employee parking. However, if the amount you pay is over $260 per employee—for 2018, the IRC Section 132(f)(2) fringe benefit limitation—the excess will need to be reported as part of employee wages and compensation. Any amount reported as taxable compensation to the employee will not be treated as a disallowed expense by the taxpayer.
If you own or lease all or part of a parking facility, you may calculate the disallowed expense using “any reasonable method.” Notice 2018-99 outlines a four-step process that will be treated as a reasonable method if used by the taxpayer.
For example, a manufacturing company’s employees park in a facility during normal business hours and they typically use 70% of the parking spots. The total parking facility expenses for the year are $10,000. It would be reasonable to multiply 70% by $10,000 and conclude that $7,000 of their total parking expenses would be disallowed.
If you have questions about your parking arrangements and the impact on your taxes, or general planning after tax reform, please reach out to John Kammerer, CPA, and Business Tax Partner at Redpath and Company at email@example.com or (651) 255-9305.
John Kammerer is a partner at Redpath and Company and holds a seat on the firm’s board of directors. He leads the firm’s business tax service area, assisting clients with tax planning and preparation, research, entity structuring, and M&A transactions. John works with a variety of clients in industries such as manufacturing, construction, real estate, and professional services. He is a frequent presenter on topics of business taxation and entity structuring. John is also a member of the S Corp Association advisory board and is actively involved with the group to promote and support tax policies that positively impact S Corporations and privately-held businesses. John graduated from Winona State University with a Bachelor of Science degree in Accounting. He is a member of the American Institute of Certified Public Accountants (AICPA) and the Minnesota Society of Certified Public Accountants (MNCPA). He has provided public accounting services at Redpath and Company since 2004.More posts by John Kammerer
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