IRS Explains That Employer-Provided gFreeh Parking May Be Taxable

From the July 24, 2014 EBIA Weekly

Available at http://www.irs.gov/pub/irs-wd/14-0017.pdf

The IRS has released an information letter explaining the basic rules that determine whether parking provided at no charge to employees is subject to FICA, FUTA, and federal income tax withholding. The letter was issued in response to an inquiry about an employer that provides free onsite parking to its employees. The employer reportedly was told that it would have to report the value of the free parking to the IRS as a taxable fringe benefit.

In the information letter, the IRS reviews the basic rules that presume all fringe benefits to be income unless a specific exclusion applies, noting that the exclusion for qualified transportation fringe benefits applies only to parking that is gqualified parking.h In order for that exclusion to apply to employer-provided parking, the parking must be on or near the employerfs business premises and not at or near the employeefs home. The parking will be employer-provided if it is provided on property the employer owns or leases, or if the employer either pays for the parking or reimburses employees for their parking expenses. Employer-provided parking that is qualified parking may be excluded from employeesf wages for federal tax purposes up to the inflation-indexed maximum amount, which for 2014 is $250 per month (see our article). If the fair market value of the parking exceeds the sum of the amount paid by the employee (if any) plus the amount excludable as qualified parking, the difference must be included in the employeefs gross income. Where, as in the case of this employer, employees pay nothing for the parking, the excess (if any) of its fair market value over the monthly limit for qualified parking must be included in employeesf wages for federal income and employment tax purposes.

EBIA Comment: This information letter offers a useful reminder that gfreeh parking for employees may result in taxes for both the employee and the employer (since the employer pays a portion of FICA, as well as FUTA taxes). While the fair market value of employer-provided parking often falls short of the maximum excludable amount, monthly parking costs in major cities may regularly exceed the excludable maximum. For example, an employee who receives free qualified parking in 2014 with a $300 per month fair market value is treated for federal tax purposes as having $50 per month of additional wages (i.e., the $300 fair market value less the $250 maximum exclusion). For more information, see EBIAfs Fringe Benefits manual at Sections XX.D (gQualified Parkingh) and XX.H.4 (gIf Value of Benefit Provided Exceeds the Statutory Limit, the Excess Must Be Included in the Employeefs Incomeh). You may also be interested in our recorded web seminar gDesign and Taxation of Low and No Cost Fringe Benefits: De Minimis, No-Additional-Cost, Transportation, and other Budget-Friendly Benefits.h

Contributing Editors: EBIA Staff.

© 2014 Thomson Reuters/EBIA. All rights reserved.