If you are a leader of a nonprofit, you are probably well aware of the confusion and publicity that has developed in recent months surrounding changes to the federal tax laws. Many nonprofit organizations — including hospitals — have been caught off-guard, leaving them to decipher exactly what it means for them specifically without much concrete direction. Unfortunately, these changes significantly impact nonprofits financially, increasing expenses and hurting budgets. According to CPA Firm Peterson Sullivan, LLC, 2017 Tax Cuts and Jobs Act provides that under the new law, certain fringe benefits previously offered to employees tax-free will become taxable, including:
- Expenses paid by a nonprofit organization that would be considered qualified transportation fringe benefits (such as bus passes, van pools, parking passes/reimbursements and bicycle commuting reimbursements)
- Expenses associated with any parking facility used to provide employee parking
- Expenses associated with an on-premises athletic facility
Prior to the law’s enactment on Jan. 1, 2018, nonprofits could provide these benefits tax-free. These organizations now must either include these benefits as taxable income to employees or elect to pay tax on the benefits by filing a Form 990-T.
Clearly, these new laws have a negative effect on nonprofits financially and create a problem for employees. Fortunately, Congress is currently in discussions to address this issue.
Senators Ted Cruz and James Lankford have introduced separate bills to repeal the provision in the law that requires tax-exempt organizations to pay unrelated business income tax (UBIT) on employee fringe benefits. Lankford considers the provision a glitch in a bill designed to “simplify tax filing, not make it more complicated or burdensome,” he says in a news release. Lankford’s Lessening Impediments from Taxes (LIFT) for Charities Act was announced Aug. 1, 2018. Representatives in the House — Mark Walker, James Clyburn and Mike Conway — have all introduced bills repealing the fringe benefits provisions as well.
Associations Now reports that the lack of guidance from the Treasury on the issue has created much confusion surrounding how nonprofits should attempt to calculate their tax liability to comply with the requirement. “Many organizations are already making estimated payments to the IRS on this expense — absent any guidance,” the article states.
Some cities also mandate pre-tax transportation benefits, preventing nonprofit employers from changing the benefits to avoid being taxed, prompting the American Society of Association Executives to suggest that special considerations be given to employers in these localities.
Though it is unclear how the laws will ultimately pan out, there is much support from representatives to make changes to accommodate nonprofits. Regardless, it’s important for nonprofit leadership to stay up-to-date on how these tax laws affect the organization.