Navigating Fringe Benefits: Exempt Organization Overview Q&A

Transcription

1 Navigating Fringe Benefits: Exempt Organization Overview Q&A Below is a summary of the questions we have received from tax-exempt organizations regarding fringe benefits with answers from our tax team. Use the links below to quickly navigate to a topic. Auto/Travel Education Entertainment Fitness/Athletics Food/Meals General Questions/Definitions Gifts Insurance Meetings/Time Mobile Phone Residence Travel Unrelated Business Income (UBI) Uniforms Health Questions Auto/Travel Our organization pays monthly auto allowances to cover vehicle use to drive to events, etc., generally for $250 per month (a flat rate). Should this be taxed? Does taking an auto home by a public employee subject to call out? Generally, auto allowances are taxable as the employee is not required to substantiate the expense nor is he/she required to reimburse the employer for amounts not substantiated. Under accountable plan rules, an allowance up to the federal applicable rate with any excess returned to the employer is nontaxable. The allowance up to the federal applicable rate is treated as substantiated. If the excess is not returned, the excess amount is reported as taxable wages. A car allowance satisfies the adequate accounting requirements if the employer reasonably limits payments to those that are ordinary and necessary in the conduct of the trade or business; the allowance is similar in form to and not more than the federal applicable rate; employees provide the time, place and business purpose of the expense; and the employer is not related to the employee receiving the allowance. If travel allowances are not based on reasonably accurate estimates of travel costs, the allowance will not be deemed to have been paid under an accountable plan and will be taxable to the employee. Personal use of a company-owned vehicle is generally a taxable noncash fringe benefit. Personal use of a company car includes commuting to and from work; running a personal errand; vacation or other nonbusiness use; or use by a spouse, dependent or other individual. There may be an exclusion from gross wages if the employee s personal use is de minimis, or the vehicle is a qualified nonpersonal use vehicle. Qualified nonpersonal use vehicles are those that have a special design that make personal use unlikely, e.g., clearly marked public safety vehicles, hearses, moving vans and school buses.

2 Can you talk about how you properly account for employer-provided vehicles under the new tax law? Personal use of a company-owned vehicle is generally a taxable noncash fringe benefit. Personal use of a company car includes commuting to and from work; running a personal errand; vacation or other nonbusiness use; or use by a spouse, dependent or other individual. There may be an exclusion from gross wages if the employee s personal use is de minimis, or the vehicle is a qualified nonpersonal use vehicle. Qualified nonpersonal use vehicles are those that have a special design that make personal use unlikely, e.g., clearly marked public safety vehicles, hearses, moving vans and school buses. General Questions/Definitions What criteria defines an accountable plan? What is a reasonable materiality when evaluating whether or not to correct an incorrectly reported fringe benefit? A few requirements must be met for the plan to be considered accountable : 1. The plan must only provide reimbursements for otherwise deductible business expenses. 2. The plan must require substantiation of the reimbursed expenses. 3. Any amounts paid to the employee that exceed the actual expense should be returned to the employer. This determination must be made by your organization based on specific facts and circumstances. Please be sure to document the conclusion reached and update internal policies to ensure the fringe benefit is properly reported prospectively. For exempt organizations, failure to properly report a taxable fringe benefit could result in an automatic excess benefit transaction.

3 Gifts Our employees receive achievement awards during a meaningful presentation for 5+ years of service. They receive a catalog to choose a gift from at their leisure. If the gift has a FMV greater than $400, is that taxable? If so, is just the amount over $400 taxable? If we give a gold pin (value of $700) for service at give years, is that taxable? The value of the award that is excludible from employee income depends on whether the award is deductible by the employer. The employer s deduction (and the employee s corresponding income exclusion) depends on whether the award is considered a qualified plan award. A qualified plan award is an employee achievement award that is awarded under an established written plan that doesn t discriminate in favor of highly-compensated employees as to eligibility or benefits. Furthermore, the average cost of all employee achievement awards provided by the employer during the tax year (if those awards would otherwise be considered qualified plan awards) must not exceed $400. The maximum combined deduction (and employee income exclusion) for all awards that don t meet these criteria is limited to $400 per employee per tax year. Qualified plan awards are not subject to this $400 limitation; however, the combined amount of qualified and nonqualified awards must not exceed $1,600 per employee per tax year. If the $1,600 or $400 limit is exceeded (as applicable), the excess is nondeductible by the employer. In that case, the employee income inclusion is the greater of (1) the amount that is nondeductible by the employer or (2) the amount by which the value of the award exceeds the amount deductible by the employer. The value of the award that is excludible from employee income depends on whether the award is deductible by the employer. The employer s deduction (and the employee s corresponding income exclusion) depends on whether the award is considered a qualified plan award. A qualified plan award is an employee achievement award that is awarded under an established written plan that doesn t discriminate in favor of highly-compensated employees as to eligibility or benefits. Furthermore, the average cost of all employee achievement awards provided by the employer during the tax year (if those awards would otherwise be considered qualified plan awards) must not exceed $400. The maximum combined deduction (and employee income exclusion) for all awards that don t meet these criteria is limited to $400 per employee per tax year. Qualified plan awards are not subject to this $400 limitation; however, the combined amount of qualified and nonqualified awards must not exceed $1,600 per employee per tax year. If the $1,600 or $400 limit is exceeded (as applicable), the excess is nondeductible by the employer. In that case, the employee income inclusion is the greater of (1) the amount that is nondeductible by the employer or (2) the amount by which the value of the award exceeds the amount deductible by the employer.

4 Regarding service awards, if the 10-year service award is a $100 gift card, would you still have to include the $100 as taxable income because it is a gift card or would it be excluded? Is there a way employers can write a policy that would make gift cards a nontaxable benefit? Is there any de minimis exception for gift cards or do they have to be reported at any amount? If we have an employee committee who raises money for end of the year prizes to be given away by random drawing, would this be considered taxable income? No employer money is used. This service award would be taxable. For purposes of an employee achievement award, the TCJA specifically defines qualifying tangible personal property to exclude gift cards of any amount. The IRS makes it clear that cash and cash equivalents, including gift cards, are taxable to the employee. They are not de minimis, no matter how small the value may be. The IRS makes it clear that cash and cash equivalents, including gift cards, are taxable to the employee. They are not de minimis, no matter how small the value may be. For purposes of determining whether a benefit is includible in an employee s gross wage, you must first determine who provided the benefit. Employers are responsible for reporting non-excludable benefits they provide to an employee. If the employee committee raises the funds in the name of or for the benefit of the employer, the prize could be taxable to the employee. In addition, raising cash funds to be given away via random drawing could be seen as a gaming activity. Additional consultation with your tax advisor and your specific facts are needed to answer the question. Mobile Phone What kind of support would be adequate for not including partial cell phone reimbursement to employees? Notice states that when an employer provides a cell phone to an employee for noncompensatory business reasons, the employee s business use of the cell phone is excluded from gross income as a working condition fringe benefit. The value of any personal use of an employerprovided cell phone can be excluded from income as a de minimis fringe benefit. The employee must provide substantiation for the cost incurred. In such case, a copy of the monthly cell phone bill would be adequate support. In addition, the employer should document whether provision of the cell phone is for a noncompensatory business purpose (working condition fringe benefit) and that the employee has to be available to speak to clients and customers at all times when away from the office, as well as speak to customers outside of normal work hours. The level of cell service provided must be reasonable for the expected use. Do not provide international coverage if the employee is not expected to need international coverage to speak with clients and customers.

5 The Notice provides that when an employer provides an employee with a cell phone primarily for noncompensatory business reasons, the business and personal use of the cell phone is generally nontaxable to the employee. The IRS will not require recordkeeping of business use in order to receive this tax-free treatment. IRS Issues Guidance on Tax Treatment of Cell Phones; Provides... We give cell phone allowances to some employees every paycheck for business use of their personal phone. The phone and phone plan belong to the employee, we just give them a stipend for the usage. Is this considered a taxable fringe benefit? Notice states that when an employer provides a cell phone to an employee for noncompensatory business reasons, the employee s business use of the cell phone is excluded from gross income as a working condition fringe benefit. The value of any personal use of an employerprovided cell phone can be excluded from income as a de minimis fringe benefit. The employer should document whether provision of the cell phone is for a noncompensatory business purpose (working condition fringe benefit) and that the employee has to be available to speak to clients and customers at all times when away from the office, as well as speak to customers outside of normal work hours. The level of cell service provided must be reasonable for the expected use. Do not provide international coverage if the employee is not expected to need international coverage to speak with clients and customers. Amounts paid outside of the accountable plan rules (no substantiation of expense) are taxable. Notice states that when an employer provides a cell phone to an employee for noncompensatory business reasons, the employee s business use of the cell phone is excluded from gross income as a working condition fringe benefit. The value of any personal use of an employer-provided cell phone can be excluded from income as a de minimis fringe benefit. The employee must provide substantiation for the cost incurred. In such case, a copy of the monthly cell phone bill would be adequate support. In addition, the employer should document whether provision of the cell phone is for a noncompensatory business purpose (working condition fringe benefit) and that the employee has to be available to speak to clients and customers at all times when away from the office, as well as speak to customers outside of normal work hours. The level of cell service provided must be reasonable for the expected use. Do not provide international coverage if the employee is not expected to need international coverage to speak with clients and customers.

6 I understand we can reimburse employee s personal cell phone plan expenses with the employee s bill. Do we also need the call list? Amounts paid outside of the accountable plan rules (no substantiation of expense) are taxable. Notice states that when an employer provides a cell phone to an employee for noncompensatory business reasons, the employee s business use of the cell phone is excluded from gross income as a working condition fringe benefit. The value of any personal use of an employer-provided cell phone can be excluded from income as a de minimis fringe benefit. The employee must provide substantiation for the cost incurred. In such case, a copy of the monthly cell phone bill would be adequate support. In addition, the employer should document whether provision of the cell phone is for a noncompensatory business purpose (working condition fringe benefit) and that the employee has to be available to speak to clients and customers at all times when away from the office, as well as speak to customers outside of normal work hours. The level of cell service provided must be reasonable for the expected use. Do not provide international coverage if the employee is not expected to need international coverage to speak with clients and customers. Entertainment We are a performing arts organization. We allow employees a 50% ticket discount. We do not currently report this as taxable income. Since we restrict discounts from high sales concerts, does this meet the exclusion? What about subscription tickets, which are generally sold prior to knowing if the performance is popular? Also, we provide volunteers with ticket discounts on subscriptions and single tickets. Are entertainment expenses for not-for-profits includable as UBI? For employee discounts, the maximum discount for services is 20% of the price at which the employer offers the same service to customers. This amount would be excluded from the employee s income. Any excess would be taxable. However, it is possible that the discount that exceeds 20% could be excludable if the benefit qualifies as a no-additional-cost fringe benefit. Discounts provided to the employee for events that are not sold out could qualify as a no-additional-cost fringe benefit so long as the employee is not using a seat that could have been sold to another patron. For subscription tickets, the discount in excess of 20% will be taxable for events where the ticket could have been sold to another patron at full value as it does not qualify as a no-additional-cost fringe benefit. No. Unlike the parking and transportation fringe benefit, nondeductible entertainment is not considered unrelated business income (UBI). However, to the extent the entertainment expense is directly related to the production of UBI it is no longer deductible as a business expense and will not reduce UBIT.

7 Fitness/Athletics If an athletic director (AD) attends out-of-town sporting events as required by the college, but with no overnight stay, can the college reimburse the AD and exclude the amount under an accountable plan? If a not-for-profit provides fitness membership to specific staff because they are going with clients, but can also go on their own, should this be considered taxable? Fitness & Athletic Facilities vs. No Additional Cost Benefit: if the employee/fitness facility is a YMCA, would YMCA employees fall under the no-additionalcost benefit exclusion since providing access to the fitness facility creates no additional cost to the employer (YMCA)? A few requirements must be met for the plan to be considered accountable : 1. The plan must only provide reimbursements for otherwise deductible business expenses. 2. The plan must require substantiation of the reimbursed expenses. 3. Any amounts paid to the employee that exceed the actual expense should be returned to the employer. If all requirements met, the expenses can be excludable from income as long as they are deductible business expenses. Any personal use of the fitness membership is taxable to the employee unless personal use is reimbursed by the employee or paid directly to the club by the employee. If the organization is providing employees free access to the facility during normal operating hours available to the general public, the benefit is excluded as a no-additional - cost fringe benefit. If the organization provides access outside of normal hours, the benefit is included as taxable fringe benefit as the organization would incur additional costs to operate during the extended hours. If gyms are offered to the employee workforce and to the public, are the employees able to pay a monthly discount with the maximum 20% discount rule without it being taxable income? With regard to employee discounts, the maximum discount for services is 20% of the price at which the employer offers the same service to its customers. In such case, this amount would be excluded from the employee s income. Any excess would be taxable. However, you may want to consider whether this benefit qualifies as a no-additionalcost fringe benefit. If the benefit qualifies as a noadditional-cost fringe benefit, employee s access to the facilities would be fully excluded from gross income. If the university has an on-campus fitness center operated for the students, would it still be excludable from income for the employee if the university charges their students to use the center, but isn t charging their employees? If the organization is providing employees free access to the facility during normal operating hours available to the general public, the benefit is excluded as a no-additionalcost fringe benefit. If the organization provides access outside of normal hours, the benefit is included as taxable fringe benefit as the organization would incur additional costs to operate during the extended hours.

8 Would you explain taxability of paid time off again? If a 1/2 day off is given as a wellness incentive if certain conditions are met, is this now taxable? During our presentation, we noted that, for purposes of identifying excludable service and retirement awards, the new law defines tangible personal property to exclude cash, cash equivalents, gift cards, gift coupons, gift certificates (other than from an employer preselected limited list), vacations, meals, lodging, theater or sports tickets, stocks, bonds, or similar items, and other nontangible personal property. Therefore, if an employer wishes to provide a nontaxable award, it must not include one of these stated items. With regard to your question pertaining to wellness programs, paid time off provided as a program incentive would be additional taxable compensation to the employee. Federal tax laws do not provide a specific exclusion for wellness program incentives. When analyzing the potential exemptions that may apply to wellness programs, you would look to medical care coverage (IRC 105 and 106) and fringe benefit exclusions (IRC 132). Paid time off does not qualify under any of these exemptions. Health Would providing reimbursement to employees for a portion of their health insurance deductible be taxable? What about reimbursement of doctor co-pays? Are health insurance premiums a taxable fringe benefit? Reimbursement of deductibles or co-pays are personal in nature. Because they lack a business purpose, they are taxable to the employee. Please note, however, that employer-provided health insurance and contributions made by an employer to a health savings account of an eligible employee are generally excludable from an employee s income. If an employer pays the cost of health insurance plan for his/her employees, including an employee s spouse and dependents, the employer s payments are not wages and not subject to Social Security, Medicare and FUTA taxes, or federal income tax withholding.

9 Residence From a college standpoint, if an employee (coach) is required to live on campus and be available for problems that may arise, is the value of the residence and/or utilities provided excluded from W-2 wages? There is an exclusion from employee income for the value of lodging and meals when: 1. It is provided for the convenience of the employer. 2. Both lodging and meals are provided on business premises. 3. The employee is required to accept such lodging as a condition of employment. Exclusion does not apply if there is an option to accept additional compensation in lieu of meals and lodging. The term lodging, as used in IRC Sect. 119, encompasses items such as heat, electricity, gas, water and sewerage service. Accordingly, where an employer furnishes utilities necessary to make the lodging habitable, the value of such utilities may be excluded from the employee s gross wage. Is the fair market value of a provided home for a president of a university located on school property not income if the university requires the president to live in it? Does an employee need to receive cash in addition to room and board for the room and board to be excluded (assume it is for the employer s benefit and is required)? There is an exclusion from employee income for the value of lodging and meals when: 1. It is provided for the convenience of the employer. 2. Both lodging and meals are provided on business premises. 3. The employee is required to accept such lodging as a condition of employment. Exclusion does not apply if there is an option to accept additional compensation in lieu of meals and lodging. The term lodging, as used in IRC Sect. 119, encompasses items such as heat, electricity, gas, water and sewerage service. Accordingly, where an employer furnishes utilities necessary to make the lodging habitable, the value of such utilities may be excluded from the employee s gross wage. There is an exclusion from employee income for the value of lodging and meals when: 1. It is provided for the convenience of the employer. 2. Both lodging and meals are provided on business premises. 3. The employee is required to accept such lodging as a condition of employment. Exclusion does not apply if there is an option to accept additional compensation in lieu of meals and lodging.

10 Insurance Did the amount of term life coverage offered by employers before the premiums become taxable to employees go down with the changes in tax reform? Our company provides life insurance at 1x our salary; is it true the amount above $50,000 is taxable? The slide on nontaxable life insurance said below $50,000. Is $50,000 also nontaxable? Our group life insurance is $75,000 so I am guessing we have taxable benefits for the $25,000 above the $50,000? No, the cost of group-term life insurance on the life of an individual, which is provided under a policy carried directly or indirectly by the employer, remains nontaxable but only to the extent the insurance coverage does not exceed $50,000. The taxable benefit is determined using the IRS Premium Table. Yes, the cost of group-term life insurance provided under a policy carried directly or indirectly by the employer is taxable to the employee to the extent that cost exceeds the sum of the cost of $50,000 in coverage plus any amount paid by the employee toward the purchase of the insurance benefit. The taxable benefit is determined using the IRS Premium Table. Yes, the cost of group-term life insurance provided under a policy carried directly or indirectly by the employer is taxable to the employee to the extent that cost exceeds the sum of the cost of $50,000 in coverage plus any amount paid by the employee toward the purchase of the insurance benefit. The taxable benefit is determined using the IRS Premium Table. Yes, the cost of group-term life insurance provided under a policy carried directly or indirectly by the employer is taxable to the employee to the extent that cost exceeds the sum of the cost of $50,000 in coverage plus any amount paid by the employee toward the purchase of the insurance benefit. The taxable benefit is determined using the IRS Premium Table. Food/Meals Executive employees provide a meal for all employees several times a year. Executive employees are reimbursed for their actual expenses. These meals are generally less than $12/employee. Is this a taxable fringe? How does the nondeductibility of meals affect not-forprofits? This benefit would fall under the Working Condition Fringe Benefit rules. The substantiated reimbursement is excludable from the employee s income if the employee would be able to deduct it as a business expense, e.g., as a coaching, team development, networking or other business expense. The employer should look at the overall picture of what the employee s job is to determine whether the reimbursement is a business expense for purposes of his or her job. Unlike the parking and transportation fringe benefit, nondeductible meals and entertainment is not considered unrelated business income (UBI). However, to the extent the entertainment expense is directly related to the production of UBI it is no longer deductible as a business expense and will not reduce UBIT.

11 How do we prove business purpose when a supervisor takes an employee out to lunch? You mentioned employer deductions for meals is now down to 50% and will be reduced in their entirety; however, for the tax-exempt employer, is there any impact for meals for UBIT? Are Rotary and Kiwanis dues that are paid for senior leaders for community support taxable? And what about the luncheon fee? Substantiation should cover the five Ws (what, when, where, why and who). You can document the business purpose to be something like coaching, relationship building, etc. No. Unlike the parking and transportation fringe benefit, nondeductible meals and entertainment is not considered unrelated business income (UBI). However, to the extent the entertainment expense is directly related to the production of UBI it is no longer deductible as a business expense and will not reduce UBIT. Social club membership dues are taxable to employees regardless of whether the club is tax-exempt. A deduction may be allowed for business meals at a social club even though the club dues aren t deductible. The cost of meals are deductible only to the extent they otherwise satisfy the standards for deductibility for meals. Meetings/Time Does an employee s individual meeting with our retirement plan broker regarding the employee s personal retirement account is excludable or taxable? There is an exclusion from income for qualified retirement planning services provided to an employee and his or her spouse by an employer maintaining a qualified employer plan. Services could include simply providing information about the plan or even offering advice and information regarding retirement income planning for the individual. The exclusion does not apply to general services such as tax preparation, accounting, legal or brokerage services and it is important to ensure the services are provided on a nondiscriminatory basis. Travel What if we are reimbursing students for travel expenses who are taking part in some trip related to a course or conference that assists their understanding of a course? Does this apply only to military? Otherwise all moving expenses are taxable? The answer to this question is beyond the scope of this webinar. Please consult your tax advisor. For tax years beginning on or after January 1, 2018, and before January 1, 2026, the qualified moving expense reimbursement exclusion applies only to certain members of the U.S. military. Not only is this benefit no longer an excluded fringe benefit, the cost of qualified moving expenses is no longer deductible by the employee on their personal tax return.

12 If a university agrees to reimburse a new employee up to $1,500 for an airline ticket purchased to travel to a new city of residence for the purpose of house hunting, is that taxable? For tax years beginning on or after January 1, 2018, and before January 1, 2026, the qualified moving expense reimbursement exclusion applies only to certain members of the U.S. military. Not only is this benefit no longer an excluded fringe benefit, the cost of qualified moving expenses is no longer deductible by the employee on their personal tax return. This includes pre-move house-hunting expenses. Education Is tuition remission to retirees taxable (assume the employer is a university)? Tuition remission is only for employees and in special situations, grad students and research assistants. Retirees are not considered employees. Therefore the value of the benefit should likely be included as compensation to the nonemployee. UBI If your fiscal year is July 1, 2017, to June 30, 2018, do you have to pay UBIT on transit benefits beginning FY or FY (because it was effective January 1, 2018)? For FY end orgs, do you know how it will be handled for non-tax fringe benefits subject to UBI? How do you value parking on a surface lot you own? If a hospital reimburses employees 50% of the cost of a RTD pass and it is less than $260 per month, can the employer not have to report it as UBI? Is wage reduction for transportation still not taxable for the employee? If so, is it considered UBI for the employee and taxed at the 21% corporate rate? This provision became effective for payments paid after December 31, 2017; therefore, UBIT applies to parking and transit benefits paid or incurred after December 31, Fiscal year organizations will be subject to UBIT for the period January 1, 2018, through their applicable year-end. This provision became effective for payments paid after December 31, 2017; therefore, UBIT applies to parking and transit benefits paid or incurred after December 31, Fiscal year organizations will be subject to UBIT for the period 1/1/18 through their applicable year end. We are currently waiting on guidance from the Treasury and IRS for methods for valuing the qualified parking benefits. Under the TCJA, this would be considered a nondeductible qualified transportation fringe subject to UBI inclusion, unless the benefit is provided to ensure the safety of an employee. Under the TCJA, the employee can still receive the transportation benefit as a nontaxable item. If the organization wants to continue to provide this benefit, it will be subject to UBIT at 21% on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI.

13 We pay less than $250 per month for our employees to park at the office. Do we have a UBIT issue? Can you talk a little more about what would be taxable to employees in regard to parking? If an employer owns their parking lots and provides employee parking, will that be considered UBI under the new tax law? Are there options not-for-profits have related to paid parking other than creating UBI or employee taxable income? My company leases part of a building for our business. This does include the parking lot that is not listed as a separate line item in the lease. Is the parking spot taxable for the employee? If employees and students are paying for and sharing the same parking facilities, are the parking receipts still UBIT for employees? For 2018, the monthly limit on the amount that may be excluded from an employee s income for qualified parking benefits will be $260. If the organization wants to continue to provide this benefit tax-free to the employee, it will be subject to UBIT at 21% on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI. For 2018, the monthly limit on qualifying employer-provided parking benefits is $260. Any monthly cost in excess of this amount would be included in the employee s wage. With the enactment of the TCJA, the employer s treatment of these expenses has changed. If the organization wants to continue to provide this benefit tax free to the employee, it will be subject to UBIT at a 21% tax rate on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI. We are currently waiting on guidance from the Treasury and IRS to determine the methods under which these qualified parking benefits should be valued. Not to our knowledge. For 2018, the monthly limit on qualifying employer-provided parking benefits is $260. Any monthly cost in excess of this amount would be included in the employee s wage. With the enactment of the TCJA, the employer s treatment of these expenses has changed. If the organization wants to continue to provide this benefit tax free to the employee, it will be subject to UBIT at a 21% tax rate on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI. If the employees are paying for parking with no cost paid by the employer, there is no UBIT consequence to the employer. If the employee is paying less than fair market value or less than amounts paid by other patrons in the parking lot there may be a UBI consequence to the employer. Further guidance from the IRS is needed to quantify the amount that would be included in UBIT.

14 Our organization charges employees for parking using a pre-tax payroll deduction. Are we still allowed to collect from employees in that manner? Can you go over why not-for-profits have to pay UBIT on transit benefits when they didn t have to in the past? Qualified Parking: I thought the new tax act eliminated the qualified parking as an exclusion? Something about qualified parking changed? I thought the new tax code required the employee to pay taxes on subsidized parking? Can you explain how parking might be taxable? Under the TCJA, the employee can still receive the transportation benefit as a nontaxable item. If the organization wants to continue to provide this benefit taxfree to the employee, it will be subject to UBIT at 21% on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI. Under tax reform, taxable employers are not allowed a tax deduction for the cost of providing qualified transportation and qualified parking benefits. This is one of the tradeoffs for lower tax rates that taxable employers will benefit from under tax reform. Congress felt that the disallowance of this deduction should also extend to exempt organizations. To correct this, the law requires that exempt organizations consider the value of these benefits be treated as unrelated business income with the appropriate UBIT paid on the value. Under the TCJA, the employee can still receive the transportation benefit as a nontaxable item. If the organization wants to continue to provide this benefit taxfree to the employee, it will be subject to UBIT at 21% on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI. Under the TCJA, the employee can still receive the transportation benefit as a nontaxable item. If the organization wants to continue to provide this benefit taxfree to the employee, it will be subject to UBIT at 21% on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI. Under the TCJA, the employee can still receive the transportation benefit as a nontaxable item. If the organization wants to continue to provide this benefit taxfree to the employee, it will be subject to UBIT at 21% on the value and/or cost (to be determined once guidance from the Treasury and IRS is received). The benefit must be added to the employee s taxable wages to exclude the amounts from UBI.

15 Uniforms Are company-provided shirts, not uniforms, with the company s logo a taxable fringe benefit? What are some guidelines on the taxability of uniforms provided to employees? Has this benefit been impacted by the new tax laws? Depending on the frequency of the benefit, these items may qualify for exclusion as a de minimis fringe benefit. When the employer-provided property has such a small value and frequency that accounting for the item would be impractical, the benefit would be de minimis. Keep in mind that there is nothing in the IRC that specifically states what dollar limit that qualifies as de minimis so it is up to your organization to determine what level you feel comfortable with as low FMV. The cost of buying and maintaining uniforms is deductible by the employee as ordinary and necessary business expenses if the uniforms are (1) specifically required as a condition of employment, and (2) not adaptable for general or continued usage, i.e., street wearable. Uniforms that can be worn as ordinary clothing or that replace ordinary clothing (such as military uniforms) do not meet the second part of this test and cannot be considered ordinary and necessary business expenses. If the uniforms in question meet both of these parameters, then they are a working condition benefit. If not, they are taxable to the employee. Please note, these responses take the provisions within the Tax Cuts and Jobs Act into consideration; however, further guidance from the IRS on how these provisions will be interpreted may affect the future accuracy of these responses. BKD is under no obligation to update these responses if such changes occur.