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Congress Repeals Tax on Nonprofit Transportation Benefits, Retroactive Refunds Expected

In late December 2019, President Trump signed an appropriations package into law which repealed the two-year-old tax on transportation benefits provided by nonprofit employers to their employees. Nonprofit employers will not need to pay the tax in 2020 and, with the help of future guidance, may be able to seek a refund from the IRS for the same transportation taxes paid in preceding years.

The newly repealed tax—created by the 2017 Tax Cuts and Jobs Act—had subjected the value of parking and transit-related benefits provided by nonprofit employers to the 21 percent Unrelated Business Income Tax (UBIT) rate, including benefits paid by employees through pre-tax payroll deductions. Many nonprofits in 2018 and 2019 struggled to meet their new tax liabilities, especially those in jurisdictions like D.C. which mandate that employers provide transportation benefits. The tax also required many affected employers to file Form 990-T as part of their annual IRS information return for the first time. An analysis by Independent Sector estimated that the tax and associated administrative costs diverted an average of $12,000 from every nonprofit.

The repeal is retroactively effective to the January 1, 2018 implementation date of the tax, meaning that nonprofits should be able to seek a refund from the IRS for taxes already paid in 2018 and 2019. The IRS is expected to issue guidance regarding refund procedures soon. Nonprofits that paid the transportation tax in preceding years should look out for the IRS’ guidance and consult with their tax advisers about seeking a refund.