Many of the church leaders I know and work with have been puzzled about an obscure provision in the Tax Cuts and Jobs Act of 2017 known as the parking lot tax. This provision deals with parking provided to employees. Some leaders are concerned that these parking spaces have become a potential tax liability. As frequently happens with a change in the tax code, there is lots of confusion about the intent and its consequence.
There is a way to determine whether a church’s employee provided parking creates taxable income. My advice is that, as a church leader or financial officer, you work with your CPA or tax consultant. Here are some of the questions you will have to answer:
1. Does your church own or lease parking for employees and members?
If so, if even a few of the spots are reserved for employees, the expenses related to those spots create unrelated business income (UBI).
2. How are the non-reserved spaces used?
If at least 51% of the remaining (Non-employee designated) spaces are available to the general public (non-members), then all the remaining spaces are considered to be used by the general public and do not create unrelated business income.
Note: One strategy is to eliminate reserved employee parking. Churches may take advantage of an extended deadline given by the IRS to eliminate reserved spaces. If the change is made by March 31, 2019, it will be considered retroactive to January 1, 2018.
3. Do you provide church employees with off-site parking?
If you don't own a parking lot but pay the expenses for your employees to park off site, you still may be liable for taxes on UBI. One way to avoid it is add the value of the benefit to the employees' taxable income and report it on Form W-2.
Source: Church Finance Today
Parking benefits provided to employees– through onsite spaces or reimbursement of expenses – may be a complicated tax issue for churches. When it comes to tax planning and filing, whatever the particular problem, it is wise to work with a trusted tax professional.
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Charles P. Myrick is a Washington, DC accounting firm offering specialized CFO services to churches and religious institutions. Myrick CPA was voted Best Accounting Firm in DC, 2016 and 2017, Washington City Paper Readers' Poll. Request a confidential consultation, today.