Tax Cut and Jobs Act: Nonprofit Fringe Benefits
The 2017 Tax Cuts and Jobs Act has significant implications for Individuals, businesses and, even, nonprofit organizations. While you are evaluating the impact related to your organization, it is important to be aware of possible situations that may now require nonprofits to file an Exempt Organization Business Income Tax Return (Form 990-T) and potentially pay taxes.
Nonprofits will need to evaluate certain benefits paid, for their employees, that under the 2017 Act are now taxable. The new tax law imposes an unrelated business income tax (UBIT) on the amount tax-exempt employers pay for employee’s transportation benefits. These include:
- Expenses that would be considered qualified transportation fringe benefits (such as parking passes, bus passes, bicycle commuting reimbursements)
- Expenses associated with a parking facility used to provide employee parking
- Expenses associated with an on-premises athletic facility.
Your organization can consider increasing employees’ gross pay and having the employee be responsible for paying their own parking. Employees can make a monthly election through a qualified transportation compensation reduction plan to have pretax dollars taken out of their paycheck to cover their parking costs. Another option is for the organization to continue providing the parking benefits and elect to pay tax on these benefits by filing a Form 990-T.
If your organization is required to file a 990-T for the first time, it is important to know that when filing, an organization is allowed a standard deduction of $1,000. If taxes are expected to be over $1,000 for the year, estimated tax payments must be made quarterly to avoid penalties. The taxable benefits will be subject to the 21% corporate tax rate.
The National Council of Nonprofits wrote a letter to the IRS and Department of Treasury to request a delay in the implementation of the new UBIT requirements. They expressed concerns about the changes and requested that the Treasury provide the nonprofit community with more time and guidance to fully understand the compliance obligations. To date, there has been no response to this request.
We will provide updates for any changes or delays to this new requirement. Please feel free to contact us if you have any questions about these changes or options for complying with the new requirements for your organization. Article compiled by Justine Bauer.
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