Congress Repeals Transportation Fringe Benefit UBIT on Tax-Exempt Employers
In the December 2019 spending package, Congress repealed Internal Revenue Code §512(a)(7) striking the 21% increase in unrelated business income tax (UBIT) that tax-exempt employers pay on certain transportation fringe benefits (public transportation, parking) offered to employees. The effective date is retroactive to the date of enactment of the provision, essentially allowing exempt employers to file an amended return seeking a refund on the taxes paid since enactment of the Tax Cuts and Jobs Act (TCJA), and abolishing the tax going forward [H.R. 1865, L. 2019].
The UBIT impacted APA members who work for tax-exempt employers and APA’s organization itself when offering transportation benefits to staff. For the past two years, APA worked with a coalition of more than 115 national and regional tax-exempt organizations and associations to repeal the IRC provision. The effort included meetings with House and Senate staff and letters to congressional leaders.
Until 2018, tax-exempt organizations that provided transportation and parking benefits to employees were not subject to tax on those benefits, whether provided directly or indirectly. The TCJA §512(a)(7) continued to allow employees to benefit from pretax options for transportation benefits but removed the benefit for employer taxes. The TCJA eliminated some business tax benefits in favor of a significantly lower tax rate for businesses (to 21% from 35%). However, the lower tax rate did not apply to tax-exempt organizations.
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Alice P. Jacobsohn, Esq., is Senior Manager of Government Relations for the APA.