IRS Clarifies Disallowance of Employee Parking Expenses

• Published date: 01 January 2019
• Author: Shirley Dennis‐Escoffier
• Date: 01 January 2019
• DOI: http://doi.org/10.1002/jcaf.22370

IRS

IRS Clarifies Disallowance of

Employee Parking Expenses

Shirley Dennis-Escoffier

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

benefit 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 benefit,

employers can no longer

deduct the cost of that benefit

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 employees’pay-

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

benefits 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 benefits such as transit

passes) so up to $265 per

month for 2019 can still be

excluded from employees’tax-

able income for parking bene-

fits; the change is that the

employer is no longer allowed

a deduction for their expenses.

So now businesses must choose

who gets the tax benefit; 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 benefits 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).

BACKGROUND

The TCJA amended

Internal Revenue Code (IRC)

Section 274(a)(4) to disallow an

employer’s deduction for

employee parking expenses

paid or incurred after 2017 that

are excluded from the

employee’s taxable income as

qualified transportation bene-

fits under IRC Section 132(f).

Employee parking is defined 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 party’s

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 (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22370 175