ASAE will bring a small but diverse group of association leaders to meet with Treasury officials April 25 to discuss changes in the new tax law affecting fringe benefits.
ASAE submitted comments on recently-issued guidance on fringe benefits late last month. The Tax Cuts and Jobs Act enacted at the end of last year renders certain employer-provided fringe benefits non-deductible. While this provision applies to all employers (both for-profit and tax-exempt), the new law subjects tax-exempt organizations to unrelated business income tax (UBIT) on the value of certain employee fringe benefits, including transportation, parking facilities and on-premises athletic facilities. A qualified transportation fringe benefit includes anything provided by the employer to an employee for commuting, including mass transit passes, parking passes or reimbursements, buses, van pools, and the like. So starting in 2018, associations that want to continue to provide transportation and parking benefits tax-free to employees will have to pay UBIT on the value of those benefits.
Most surprising to ASAE and others was that the Treasury guidance clarifies that employers should pay UBIT not just on direct payments for transportation and parking benefits, but also on amounts paid by employees through elective salary deferral via a compensation reduction agreement. Because employees pay for transportation themselves in this arrangement, many tax-exempt employers have not previously viewed salary deferrals for commuting costs as a fringe benefit.
In addition, some cities, including Washington, DC, New York and San Francisco, have mandated that employers provide pre-tax mass transit benefits, so employers in those cities do not have the option of changing those benefits.
The goal of the meeting with Treasury later this month will be to share with Treasury officials how this provision impacts tax-exempt employers in particular, and reinforce the need for supplemental guidance in this area.