Nonprofits to Pay Income Tax on Transportation BenefitsSummary Prepared by Hannah Locop, GPNP Program Manager
With the passage of H.R. 1, or the Tax Cuts and Jobs Act, earlier this year, nonprofits have a new form to file before May 2019, and some may not even know it yet.
The IRS Form 990-T will now be required of nonprofit organizations who provide transportation or parking passes to their employees. This is what the IRS terms a “fringe benefit,” which qualifies nonprofits to pay UBIT, or Unrelated Business Income Tax.
It’s well-known that because of their tax-exempt status, nonprofit organizations previously were not required to pay taxes on this kind of an expense in their operating budget. For-profit companies who provided employee transportation benefits were even granted deductions on their corporate income tax prior to 2018. However, in the new tax law, Congress removed the deduction for for-profit companies and levied a tax on nonprofit organizations. As the North Carolina Center for Nonprofits argues this provision in the Tax Cuts and Jobs Act, “sets a precedent of applying an income tax to nonprofits’ expenses.”
How much in taxes would nonprofits owe? 21% UBIT on the cost of directly paying or reimbursing employees for their transportation and parking passes. Luckily, nonprofits will not owe taxes for reimbursing employees’ mileage or parking fees at temporary work locations, and neither will they owe taxes for paying for client parking.
This measure is now codified in law and currently a part of the U.S. Tax Code. The only way to reverse this measure is for Congress to pass another piece of tax legislation doing so.
Proposed Action Item
However, the National Council of Nonprofits has requested the Department of the Treasury and the Internal Revenue Service to delay implementation of the new UBIT provisions, potentially saving nonprofits the time and money necessary to fulfill the new taxes required of them for 2018.
For expert advice on how the new rules impact your organization specifically, please speak with a tax professional or call or email GPNP for a referral to an expert in tax law.