Do you, as an employer, have parking available at your office or place of work? If the answer is yes, there are some things you will need to consider. The Tax Cuts and Jobs Act (TCJA) generally disallows the employer deduction for expenses regarding the cost of qualified transportation fringes for employees. When TCJA was first enacted, there was not much guidance in this section, that is until Notice 2018-99 was issued.
This notice provided the guidance people had been asking for for over a year. All in all, parking that is taxable to the employee of the business can be deducted by the employer, only if it is on an after-tax basis. Different factors come into play whether an employer pays a third party for parking, or if the employer owns/leases their own parking facility. The notice guides the employer in determining what is and is not deductible through both instances.
For employers who pay a third party, the deduction to be taken is fairly simple. Everything is disallowed except for the amount paid in excess of the monthly limitation. A reminder that any parking expense paid for employees in excess of the IRS prescribed monthly qualified parking exclusion can be included in the employee’s W2 income, and therefore would be deductible by the employer as part of the parking expense.
Owned or Leased Parking
As for those employers who own or lease their parking lot, the following is a brief explanation of how the calculation for disallowed expenses would work.This is a four-step calculation where the cost would include maintenance, repairs, snow removal, landscaping, insurance, taxes, security, and parking attendants. The notice specifically states that depreciation and expenses paid for items not located in or on the parking facility, for example lighting, are not included in the cost. Once that cost is figured, one can begin the process of calculating.
Step one of this equation would be to figure out the “reserved employee spots”. All of the costs in relation to their spots will not be deductible. These spots include any areas with specified signage or other ways to designate spots to anyone but the general public. Businesses were granted until March 31, 2019 to remove any signage to eliminate or decrease the amount of reserved parking spots within their lots. The employer should then allocate the percentage of total cost to these spots and deduct them 100% from the allowable expense.
The next step in the process is to determine the principal use of the remaining spots. These are spots not set aside specifically for employees. If 50% or more of the remaining spots are or can be used by the general public, then all of those spots are entirely deductible, and your calculation is complete. There is a guideline on what constitutes these spots as “provided to the general public,” which also needs to be taken into consideration within this calculation.
If the second step above is not the end of the road, then you must next calculate the reserved non-employee parking spots. These spots could be reserved for visitors, partners or 2-percent shareholders and are fully deductible. Again, this step requires you to calculate the percentage of spots reserved for non-employees and then you may deduct that amount in full.
Finally, step four is to determine the remaining allocation of the expenses. This is the part where anything that may not fall specifically into the above three steps would sit. The employer would then need to reasonably determine the use of these spots on a normal business day. This could be based on actual or estimated figures.
It should be noted that final guidance has not been provided for this issue. The IRS states that these guidelines are to be used in the determination of deductible qualified transportation fringes until the publication of proposed and final regulations. As you can see, the calculation for this deduction is in no way simply done. If you feel this change in law could pertain to you, or have any questions, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.