The TCJA and the disappearing parking deduction


The Tax Cuts and Jobs Act of 2017 (TCJA) has had far-reaching effects on everyone who pays income taxes.

Broad tax reform often has unintended consequences. With the TCJA, a consequence for employers is the cost of providing free parking to your employees.

Two major TCJA themes are to simplify the tax code and to remove special interest benefits for businesses and individuals. Nontaxable fringe benefits fall in this category, specifically, employer-provided parking. The cost of providing parking is no longer deductible as a fringe benefit. The only way to deduct the cost is to include as employee income on Form W-2 the amount paid for their parking.   

This calculation is easy when an employer leases spots in a parking garage or pays a parking company for parking rights. These amounts are nondeductible by the employer unless the amounts are included in taxable wages of the individuals receiving the benefit. For those who work downtown or in a big city, it’s easy to see the monetary value attached to this parking. 

Unintended consequences

 Enter the unintended consequences. Under a notice published in December 2018 (Notice 2018-99), the IRS says the non-deduction provision for employee parking applies to all free - meaning employer-paid – employee parking. Therefore, if the lease for your business property includes parking spaces for your employees, a portion of your lease cost must be disallowed unless you meet a public-use exception. If 51 percent of the parking spots for your business are available for customer or public use, that configuration should qualify for the exemption.  

Retailers should easily be able to meet this exception, but businesses in manufacturing or office complexes probably will not have enough excess parking spaces (IRS notice 2018-99 includes a list of additional exemptions).

This provision applies as well to nonprofit organizations. The IRS has said that this free parking benefit is considered unrelated business income and nonprofits must pay income tax on the amount. This income is reported on a separate form attached to the nonprofits’ annual tax return.

Increasing employees’ taxable income for free parking that has traditionally been provided may lead to difficult conversations with them on the subject. But it’s not as if you made this decision arbitrarily or unilaterally. Therefore, most employers will probably elect to disallow the deduction.

The changes take time 

As with any kind of reform, the changes take time to implement. The first tax returns subject to this provision were filed in March and April of this year; many taxpayers have extended their returns and will address it over the summer.  Therefore, the full weight of numbers is unknown in terms of who is affected.

The complexity of tax laws generally, and the sweeping nature of the TCJA specifically, result in the need to interpret – and understand the interpretation – of the law’s wording on taxes, not only for parking, but for a great many other issues as well.

There are multiple ways to address the parking deduction, which is a good reason to consult an accountant or tax adviser. If you have parking spaces for your employees at your business or nonprofit organization, consider yourself on notice from the IRS.


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This article first appeared in the Knoxville News Sentinel.

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