Reminder: New Tax on Transportation Benefits for Nonprofit Employers

The Tax Cuts and Jobs Act of 2017, which went into effect on January 1, 2018, made nonprofits liable for a new 21% tax on the value of transportation benefits offered to employees.  Perhaps counterintuitively, the value of provided transportation benefits is now considered Unrelated Business Taxable Income (UBTI) for nonprofits and is taxed at the 21% corporate rate.

In D.C., nonprofits with over 20 employees are required to offer employees either (a) an employee-paid, pre-tax deduction for use on transit expenses; (b) employer-paid and employer-provided transportation benefits, such as transit passes or Metro cards; or (c) employer-provided transportation, such as vanpool or shuttle services.  Furthermore, nonprofits of any size may provide parking benefits to their employees.  Under the new law, the value of all these benefits are now subject to the 21% UBTI tax.

Notably, nonprofits affected by the new tax may also be subject to new filing requirements on their next Form 990.  Specifically, exempt organizations that have $1,000 or more in UBTI must file Form 990-T with their annual 990 filings.  Organizations must also pay estimated tax on a quarterly schedule if they expect to pay $500 or more in UBTI taxes in a year.  For example, an organization that provided $3,000 worth of transportation benefits last year must now file Form 990-T with their Form 990, since their UBTI has gone over the $1,000 threshold; furthermore, because this organization should expect to pay $630 in UBTI taxes (21% of $3,000) annually, it should also plan on making estimated tax payments throughout the year since its UBTI taxes have exceeded the $500 threshold.  

For more information about the new transportation benefit taxes, check out the following legal alert: The IRS Makes It Clear – Tax-Exempt Organizations Must Pay Tax on Employee Transportation Benefits.