03/29/2018

ASAE Comments on Fringe Benefits Guidance

The new guidance regarding fringe benefits is applicable to all employers, including nonprofits

The American Society of Association Executives (ASAE) submitted comments today to the Treasury Department on recently-issued guidance intended to assist employers in understanding changes in the new tax law affecting fringe benefits.

The new guidance regarding fringe benefits is applicable to all employers, not just those in the tax-exempt sector. The Tax Cuts and Jobs Act enacted at the end of last year renders certain employer-provided fringe benefits non-deductible. To provide parity between tax-exempt organizations and for-profit corporations, 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, organizations 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.

What comes at some surprise to many tax-exempt employers is that the new guidance issued by Treasury makes clear 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.

“The fact that providing a pre-tax compensation reduction agreement now has negative tax consequences for tax-exempt employers was unexpected and will have many organizations scrambling to recalculate their tax liability for transportation and parking benefits utilized by their employees this tax year,” ASAE wrote in a letter delivered to Treasury Secretary Steven Mnuchin earlier today.

Given that the new tax rules are in effect for the current year and tax-exempt employers still don’t fully understand how to determine the added tax costs associated with providing certain fringe benefits, ASAE is urging Treasury to delay implementation of these new rules until such time as additional guidance can be developed and shared with employers. ASAE believes additional clarity is also needed for employers that have on-premises athletic facilities, which are also deemed fringe benefits to employees.

Again, these new rules apply to all employers. But for associations and other nonprofits seeking to understand how the new tax law changes their tax liability, the latest Treasury guidance addressing the tax treatment of transportation and parking benefits adds to the general confusion and need for further clarification from the administration.

ASAE is encouraging other associations concerned about this issue to submit comments to Treasury through the IRS web portal.

This article was provided to OSAE by the Power of A and ASAE's Inroads.