IRS Explains That Employer-Provided gFreeh 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 employerfs
business premises and not at or near the employeefs 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 employeesf 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 employeefs 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
employeesf wages for federal income and employment tax purposes.
EBIA Comment: This information letter offers a useful
reminder that gfreeh 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 EBIAfs Fringe
Benefits manual at Sections XX.D (gQualified Parkingh) and
XX.H.4 (gIf Value of Benefit
Provided Exceeds the Statutory Limit, the Excess Must Be Included in the
Employeefs Incomeh). 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.