IRS Guidance Clarifies Elimination of the Qualified Transportation Fringe Benefit Deduction | Bennett Thrasher Skip to main content

The Tax Cuts and Jobs Act of 2017 affected businesses and employees in any number of ways, and parking expenses were no exception. Before the close of 2018, the IRS issued highly anticipated guidance that will help determine the amount of qualified parking expenses that are subject to disallowance or inclusion in income.



Qualified transportation fringe benefits (QTFs) are employer-provided voluntary benefit programs that for years have allowed employees to reduce their monthly commuting expenses for transit, carpooling, bicycling, and work-related parking costs. From a tax standpoint, QTFs have enabled many employers to save on payroll-related taxes while providing federal income tax savings to employees, since QTFs are not categorized as taxable income.

Prior to the passage of the new tax reform, taxpaying and tax-exempt employers could provide each employee up to $260 each month in QTFs. In turn, employers were allowed to deduct this expense in its entirety, and that amount was excluded from the employee’s gross income. All that changed after December 31, 2017, when the Act eliminated the deduction allowance for QTFs, unless employers taxed their employees for the QTF amounts. However, the Act did not settle the matter of how taxpayers should determine the expenses that were subject to the deduction disallowance for qualified parking provided by a taxpayer to its employees.


New Guidance

The IRS hopes to clarify the issue with Notice 2018-99, which offers transitional guidance on determining the specific amount of qualified parking expenses subject to disallowance or inclusion in income.

Notice 2018-99 provides that taxpayers may rely on the interim guidance relating to the deduction disallowance, pending publication of proposed regulations. Simply put, rely on Notice 2018-99 until additional formal guidance is issued via regulations.


What do QTFs include?

  • Transportation in a commuter highway vehicle between an employee’s residence and place of employment
  • Transit passes
  • Qualified parking

Section 274(a)(4) of the Act stipulates that no deduction is allowed for any QTF provided to a taxpayer’s employee. If the amount is not taxable to the employee, the employer cannot take the deduction.

Today, as it was before the Act, QTFs continue to be excludable from an employee’s income, except for bicycle commuting reimbursements for tax years beginning after December 31, 2017, and before January 1, 2026.

Qualified parking is defined as parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by mass transit, carpool or commuter highway vehicle. This does not include parking on or near property an employee uses for residential purposes. The amount of the monthly exclusion for qualified parking expenses for 2018 is $260.


Expenses Subject to Disallowance by Notice 2018-99

Notice 2018-99 itemizes parking expenses that are subject to disallowance. They include, but are not limited to:

  • Repairs
  • Maintenance
  • Utility costs
  • Insurance
  • Property taxes
  • Interest
  • Snow/ice removal
  • Leaf removal
  • Trash removal
  • Cleaning
  • Landscape costs
  • Parking lot attendant expenses
  • Security
  • Rent or lease payments (or a portion of a rent or lease payment, if not broken out separately)

Note that this excludes depreciation on a taxpayer-owned parking structure from expenses subject to disallowance, noting that depreciation is an allowance for exhaustion, wear and tear, and obsolescence of the property and not a parking expense.

Additionally, while elimination of the deduction allowance impacts taxable employers, tax-exempt organizations must treat these expenses as unrelated business taxable income as well.

The adjustment employers must make often goes unnoticed, and the calculation is still subject to question by the IRS. Determining the adjustment will depend if a taxpayer pays a third party for employee parking, or if the parking lot is owned by the employer. The notice includes a four-step method that the IRS will consider reasonable in determining the expenses allocable to employee parking. This adjustment is difficult to calculate, and it has caught many taxpayers off-guard as it includes all of the various expenses above.

As of today, employers can rely on the guidance contained in Notice 2018-99. Public comments are being solicited through February 22, 2019 regarding future guidance to clarify the treatment of qualified parking expenses. Following February 22, the IRS will determine whether any additional changes are needed, or whether the guidance will remain in its current form. We at Bennett Thrasher will continue to monitor this issue and keep you apprised of all future developments.

If you have questions about qualified parking expense fringe benefits or other tax issues, contact Jerry Weil or Trey Webb by calling 770.396.2200.