IRS Issues Interim Guidance on Parking Fringe Expenses

January 3, 2019

The Internal Revenue Service recently released interim guidance for taxpayers to determine the nondeductible amount of parking expenses for qualified transportation fringes (QTFs). Determining the amount depends on whether the taxpayer pays a third party to provide parking for its employees or leases a parking facility where its employees park.  Both are summarized below:

Taxpayer Pays a Third Party for Employee Parking Spots:
  • If the monthly cost of parking for the taxpayer is less than $260 per employee, the entire amount is treated as nondeductible
  • If the monthly cost of parking for the taxpayer is more than $260 per employee, the excess amount paid by the taxpayer is treated as compensation deductible by the taxpayer and included in the income of the employee.

Taxpayer Owns or Leases All or a Portion of a Parking Facility:
While interim guidance is in place, and barring any additional regulations, taxpayers that own or lease parking facilities where their employees park may use any reasonable method to determine the amount of nondeductible expenses. IRS guidance provided an example of a reasonable method which is outlined below:

  1. Calculate the disallowance for reserved employee spots
    (Reserved Employee Spots)/(Total Parking Spots) x Total parking expenses = Nondeductible Portion #1
  2. Determine the primary use of remaining spots i.e. Non-reserved employee spots, general public parking, client parking, etc.
  3. Calculate the allowance for reserved non-employee spots
    (Reserved Non-employee Spots)/(Total Remaining Parking Spots) x Remaining parking expenses = portion of deductible expenses
  4. Determine remaining use and allocable expenses using a reasonable method, such as number of spots, the number of employees, the hours of use, or other measures.

The Department of the Treasury and the Internal Revenue Service are continually working to bring finalized regulations for 2018 modifications to the Tax Cuts and Jobs Act.

We hope you find this information valuable.  For questions about qualified transportation fringes or any other changes caused by the Act, please contact Joel Hundelt or Tim O'Neill.
 

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