New York City’s Commuter Benefits Law took effect on January 1, 2016. Under the law, both for-profit and non-profit employers with 20 or more full-time non-union employees in New York City must offer their full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits.
However, the federal Tax Cut and Jobs Act of 2017 (TCJA) made changes that could have some unintended consequences for firms subject to the Commuter Benefits Law. Prior to the passing of the TCJA, for-profit companies could deduct the expense of providing transportation benefits to their employees. The benefits were not taxable for non-profits. Since the passage of TCJA, for profit companies that provide transportation or parking benefits, must do so with the understanding that they are no longer tax deductible, and non-profits are now subject to a federal Unrelated Business Income Tax (UBIT) on any amount an employer has “paid or incurred” for commuter benefits.
What Can Be Done?
This has prompted many firms, both for-profits, and non-profits alike, to rethink providing these benefits to their employees. However, they do not have a choice, in places like New York, that have their own laws, that mandate that qualifying companies provide such benefits. This has been particularly burdensome on non-profit companies, who traditionally provide the transportation perk to employees who generally receive lower wages, than employees working in for-profit corporations.
As we reported earlier, several New York State non-profit organizations have banded together to rally support for a bill that would not charge them both the federal tax on these benefits required under TCJA, and an additional state UBIT as well.
As far as for profit companies that can no longer take a business deduction for providing mandated transportation benefits under NYC’s Commuter Benefits Law, we urge you to contact us, and see what other changes and opportunities created by TCJA are available, that may offset the repeal of this tax deduction.
Understanding all of the implications, and possible unintended consequences of the Tax Cut and Jobs Act of 2017, can be quite complex. If you would like to benefit from our expertise in these areas or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting specialists, or call us at 1-800-239-1474.
Contributing Author: Henry Lopez.