A newly passed federal spending bill has wide-ranging implications for both businesses and individuals, but one key section is of particular note for nonprofits that provide parking to employees. A controversial fringe benefits tax imposed on tax-exempt employers is set to be repealed, representing thousands of dollars in potential savings for these employers.
The Further Consolidated Appropriations Act, 2020, was approved by Congress on Tuesday, December 15th and by the Senate on Thursday, December 17th. President Trump is expected to sign the bill imminently, at which point the Setting Every Community Up for Retirement Enhancement (SECURE) Act will become law.
For nonprofits, the big news is that the bill repeals a key section of the 2017 Tax Cuts and Jobs Act related to fringe benefits. Those working in the nonprofit sector may recall that Sec. 512(a)(7) created under the TCJA included a provision affecting tax-exempt employers, which quickly became controversial and was widely criticized for putting a tremendous new financial burden on nonprofit organizations including churches and hospitals. The so-called “parking tax” increased unrelated business income tax on qualified transportation fringe benefits. This provision made parking and other transportation fringe benefits nondeductible for employers, meaning many nonprofit employers were required to pay UBI taxes of up to 21 percent on parking and other fringe benefits.
There’s more good news for organizations that provide employees with transportation benefits. The repeal of the fringe benefits tax will be retroactive for taxes nonprofits have accrued since December 31, 2017, assuming the bill is signed into law.
The SECURE Act also repeals three health care taxes that had been enacted under Obamacare; extends a number of tax provisions and credits, many of which were set to expire at the end of 2019; and provides tax relief for victims of 2018 and 2019 disasters. It also makes a number of changes designed to make it easier for businesses to offer retirement plans and easier for employees to save for retirement.
ARB will keep you informed as further developments unfold. Please contact us with any questions.
by Jason LeBlanc, Principal, CPA