As you may know, the 2018 Tax Cuts and Jobs Act was signed into law late in 2017. While this new bill provided a tax break for businesses, the overall outcome of the law is proving to be problematic for nonprofits, as shown in our blog article on how the new tax law affects pre-tax transportation benefits for nonprofits.
The new law requires employers to pay taxes on transportation benefits to their employees. While the benefit is still tax-exempt for employees, employers must pay the employer portion of FICA taxes, as well as include the transportation benefit amount when calculating Unrelated Business Income Tax (UBIT). We hope, by now, your tax accountant has provided this information to you and has estimated the additional cost to you in FICA and UBIT taxes. If not, it is important that you discuss this change with your tax professional. It is important to note that this issue relates to employer-paid benefits (i.e. contributions to transportation benefits), as well as benefits that are provided as a pre-tax deduction from employees’ wages.
This portion of the tax reform law is currently scheduled to take effect mid-May, though several organizations, including the National Council of Nonprofits, are working to advocate on behalf of nonprofits to, at a minimum, delay the effective date. On their website, they’ve reviewed this and other effects the new tax law has on nonprofits.
Nonprofit HR does not provide tax advice, so it is important that your tax specialist is aware of your transportation benefit program. If you’re concerned this additional expense may be too much for your budget, our team would be happy to set up a call with you to strategize changes to your benefits package to offset this expense. Please note that several states require employers to provide pre-tax transportation benefits, so eliminating the benefit altogether may not be an option for your organization.
We expect additional information about the potential delay to be released within the next few weeks and will continue to provide updates. In the meantime, please don’t hesitate to reach out should you have any questions or concerns around this topic.
Relevant resources noted above: