Nonprofit organizations nationwide can breathe a sigh of relief, as Congress has retroactively repealed the tax on qualified transportation fringe benefits that was included in the Tax Cuts and Jobs Act of 2017.
The TCJA originally required nonprofit organizations to treat employer-provided transportation benefits as unrelated business taxable income (UBTI). This meant that nonprofits were required to pay taxes on employee benefits like parking or transit passes. For many organizations, the cost of this new tax – as well as the administrative burden of calculation and compliance – had a serious impact on their program budgets. The nonprofit sector came together to advocate for the repeal of this tax, and their efforts have finally been rewarded.
The good news is that organizations who paid taxes on transportation benefits for 2018 and 2019 will be refunded. The refund process is currently unclear, but at this time, organizations do not need to request a refund from the IRS. It is possible that the IRS will generate refunds automatically, although this process could certainly change. Nonprofit organizations should consult with their accountants to stay informed of any changes in the refund process.
The bad news is there will not be any refund for the time and expense that nonprofit organizations around the country incurred in their attempt to comply with the law. If your organization decided to change or eliminate employee transportation benefits to avoid this tax, you may want to reassess that decision in light of the repeal.