IRS Clarifies Disallowance of Employee Parking Expenses

Published date01 January 2019
AuthorShirley Dennis‐Escoffier
Date01 January 2019
IRS Claries Disallowance of
Employee Parking Expenses
Shirley Dennis-Escofer
Although the Tax Cuts and
Jobs Act (TCJA) lowered mar-
ginal tax rates for businesses, it
eliminated the deduction for
some expenses including the
tax deduction for employers
who subsidize their employees
commuting and parking
expenses. Prior to 2018,
employers could provide or
pay for transit passes and
parking expenses as a tax-free
benet to help employees pay
for their commuting expenses
and then deduct those costs in
computing their business tax-
able income. Although
employers can still provide
transit passes or parking to
employees as a tax-free benet,
employers can no longer
deduct the cost of that benet
as of January 1, 2018. This dis-
allowance covers any arrange-
ment where the employer is
considered to pay for employee
parking no matter how the
arrangement is structured and
even extends to parking
deducted from employeespay-
checks on a pretax basis. In its
committee report, Congress
stated that this was part of a
broad tax policy change in
which it intended to target
certain nontaxable fringe
benets that it believed should
not be deductible by employers
if not includible in the income
of employees.
The TCJA did not change
the rules that exclude the value
of employer-provided parking
(and other transportation
fringe benets such as transit
passes) so up to $265 per
month for 2019 can still be
excluded from employeestax-
able income for parking bene-
ts; the change is that the
employer is no longer allowed
a deduction for their expenses.
So now businesses must choose
who gets the tax benet; it is
either tax-free to the employee
or deductible by the employer.
To the extent the employee
includes the value of the
parking in taxable income, the
employer can deduct the
parking expenses. Employers
who still want to provide tax-
free parking benets to their
employees should consider
ways to minimize the deduction
disallowance and overall
parking expenses in light of
the recently issued guidance
from the Internal Revenue
Service (IRS).
The TCJA amended
Internal Revenue Code (IRC)
Section 274(a)(4) to disallow an
employers deduction for
employee parking expenses
paid or incurred after 2017 that
are excluded from the
employees taxable income as
qualied transportation bene-
ts under IRC Section 132(f).
Employee parking is dened as
parking provided to an
employee on or near the busi-
ness premises of the employer
or near a location from which
the employee commutes to
work (but not parking on or
near property used by the
employee for residential pur-
poses). This includes allowing
employees to park for free or
at a reduced rate in an
employer-owned or leased
parking facility (such as a
parking garage or lot) and pay-
ments made by the employer to
a third party so its employees
can park in the third partys
garage or lot. Also included are
reimbursements to employees
for the cost of parking as well
as allowing employees to pay
for parking on a pretax basis
© 2019 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22370 175

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT