Preserving Tax‐Free Treatment of Employee Parking Benefits

AuthorShirley Dennis‐Escoffier
Published date01 September 2017
Date01 September 2017
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22288
Preserving Tax-Free Treatment
of Employee Parking Benefits
Shirley Dennis-Escoffier
Employers can provide park-
ing benefits to their employees
on a tax-free basis. However,
an information letter recently
issued by the Internal Rev-
enue Service (IRS) illustrates
how tax-free treatment can be
denied if all of the require-
ments are not met. The letter
addressed a parking policy
under which an employer paid
for parking spaces and was
then reimbursed by employees
who used those spaces through
a deduction from their pay.
The IRS indicated that this
parking policy did not qualify
as a tax-free transportation
fringe benefit; however, with a
little advanced planning, the
taxpayer at issue in this let-
ter could have preserved the
favorable tax treatment. In this
column we will examine the tax
rules governing the treatment
of transportation benefits pro-
vided to employees and what
to avoid so that the tax-favored
treatment can be preserved.
Commuting and related
parking expenses are usually
considered nondeductible
personal expenses and, if reim-
bursed by an employer, will be
considered taxable income to
the employee. However, under
Internal Revenue Code (IRC)
Section 132(a)(5), businesses
can provide their employees
with qualified transportation
fringe benefits that can be
excluded from gross income,
resulting in not only an income
tax savings for employees
but also a savings in payroll
taxes for both employees and
Qualified transportation
fringe benefits, as defined in
IRC Section 132(f)(1), can take
four forms: (1) qualified park-
ing, (2) transportation in a
commuter highway vehicle,
(3) a transit pass, and (4) a
qualified bicycle commuting
reimbursement. IRC Section
132(f)(5)(C) defines quali-
fied parking as parking pro-
vided to an employee that is:
(1) on or near the business
premises of the employer or
(2) at a location from which
the employee commutes to
work (including commuting
by mass transit, commuter
highway vehicle, or carpool).
Under Regulations Section
1.132-9(b), parking is consid-
ered provided by an employer
if (a) the parking is on prop-
erty that the employer owns or
leases, (b) the employer pays for
the parking, or (c) the employer
reimburses the employee for
parking expenses. Parking on
or near the employer’s business
premises includes parking on or
near a work location at which
the employee provides services
for the employer. For example,
in Letter Ruling 200347003, the
IRS determined the parking
was qualified where a company
leased office space that included
use of an adjoining parking lot
and the company permitted
employees to park in the lot as
part of the company’s qualified
plan. However, parking on or
near the employee’s residence
does not qualify.
Qualified parking does not
include the value of parking
provided to an employee that is
excludable from gross income
under IRC Section 132(a)(3) as
a working condition fringe ben-
efit or a reimbursement paid to
an employee for parking costs

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