Tax Cuts & Jobs Act makes changes to transportation fringe benefits
Recently, additional clarification was released via IRS Publication 15-B that confirms the following:
- Effective January 1, 2018, an employer may no longer take a tax deduction for the transit or parking benefit. This is regardless of whether the benefit is provided by the employer, through a reimbursement arrangement, or through a compensation reduction agreement.
- Participants are not affected and may continue to make pre-tax contributions to the transit or parking benefit.
- If an employer’s administration fees are itemized, the employer may not deduct the fees strictly for the transportation benefit; however, administration fees that are “all inclusive” (i.e. included with other benefits) may continue to be deducted. Please review your invoice for administration services.
Two other related provisions of note…
- The qualified bicycle commuter benefit has been suspended as of January 1, 2018 (and continues until 2026). As such, bicycle benefit expenses are not excludable from a Participant’s income and are to be taxed as wages during this period. Unlike the expenses for transit and parking, the bicycle expenses may continue to be deducted by the employer.
- Tax-exempt entities may have to pay an unrelated business income tax (UBIT) on any qualified transportation fringe benefit provided to employees for which employers are no longer permitted to take a deduction (i.e. parking and transit). As a result, those affected employers may simply decide to provide the benefit in the form of taxable wages going forward.
Since Participant’s may continue to receive the tax-free benefit, TASC’s administration of existing transit/parking plans does not change. Employers are urged to work with their tax professional(s) to review any potential reporting obligations.