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Do you provide parking for your employees? If so, take note: the expense has gone up (and, for tax-exempt employers, may now result in additional tax liability!).

As we wrote about last year, the Tax Cuts and Jobs Act brought surprising change in this area. For for-profit employers, the cost of providing parking to employees is no longer permitted as a deduction. For tax-exempt employers, the cost of providing parking to employees is now included in UBTI calculations.

In December of last year, the IRS released new, interim guidance instructing employers exactly how to calculate this cost. Its Notice 2018-99 provides rather comprehensive guidance, and addresses a number of smaller issues that had been left open under the Tax Cuts and Jobs Act. Its primary focus, though, is the process of calculating parking expenses.

If you pay a third party so that your employees may park in that third party’s parking facility, then the cost of providing employee parking is generally just the cost you pay to the third party—and that is the amount that is either non-deductible or treated as UBTI. The non-deductible/UBTI amount, however, is capped by the aggregated employee income exclusion limit for parking expenses (i.e., the monthly limit on each employee’s ability to exclude qualified transportation fringe benefits, including parking, from gross income). In 2019, this monthly income exclusion limit is $265 per employee. Any parking expenses paid by an employer that exceed this per-employee-limit may still be deducted by the employer and will be disregarded when calculating UBTI.

If you own or lease a parking facility where your employees park, then you may use any reasonable method to determine the cost of providing parking in that facility to your employees. The notice, however, sets forth a safe harbor method—composed of a series of steps—that has been deemed reasonable for calculating the expense. These steps are briefly summarized below.

Step 1—Calculate the expense for reserved employee spots

Determine whether any parking spots are reserved for employees (such as by gated entrances or reserved signs). If you have spots reserved for employees, determine what percentage of your total parking spots are reserved for employees. Multiply this percentage by your total parking expenses for that facility, and the resulting cost is an expense that may no longer be deducted (or, for tax-exempt employers, will count towards an increase in UBTI).

However, if you remove reserved employee spots by March 31, 2019, you may count those spots as “unreserved” retroactively to January 1, 2018, and avoid this mandatory disallowance/increase in UBTI.

Step 2—Determine the primary use of the remaining parking spots

The next step is to measure how the remaining parking spots are typically used. If more than 50% of the spots’ actual or estimated usage may be attributed to public use, then you may discontinue the analysis at this point because the company may continue to deduct the remaining total parking expenses (and for tax-exempt employers, this remaining total parking expense will not count towards an increase in UBTI). If, however, you determine the primary use of the remaining parking spots in your parking facility is not public use, you must continue to the next step and determine what portion of your remaining parking expense is non-deductible (or will increase UBTI).

Step 3— If the primary use of the remaining spots is not public use, calculate the deduction allowance for reserved nonemployee spots

If the outcome of Step 2 is that the remaining parking spots in your parking facility are not primarily for public use, then you first determine how many parking spots are reserved for nonemployees (including the general public, partners, sole proprietors, and 2% shareholders of S corporations). Calculate the percentage of these reserved spots in relation to the total number of remaining parking spots, and apply this percentage to your total remaining parking expenses. This portion of your total parking expenses may still be deducted and will not increase UBTI.

Step 4—If primary use of remaining spots is not public use, determine disallowed expenses

After taking into account the allowed expenses in Step 3, the last step is to determine the portion of the remaining total parking expenses attributable to employee parking. You may use any reasonable method to determine this portion.

Special Rules

The IRS guidance provides a host pf additional rules not summarized here, such as what expenses must be counted in calculating the parking expense, when separate parking areas may be treated as a single parking facility, what constitutes public use, how to calculate usage, and examples of reasonable allocation of expenses for unreserved spaces.

Employers should consult with qualified advisors to ensure the parking expenses are properly handled and should take action quickly if they desire to avoid the mandatory non-deductibility/UBTI for reserved employee spaces.

If you have questions on these rules, contact Hannah Munn or a member of our employee benefits team.


This is not intended as a comprehensive summary. For a more detailed exploration of the guidance, including examples illustrating the above steps, watch for Hannah’s upcoming article on the subject in the Journal of Pension Benefits.

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