As a result of the 2017 Tax Act, the costs of providing qualified parking to employees as a tax-free fringe benefit is not deductible by for-profit employers and is subject to a 21% tax for tax exempt organization employers.  Interim guidance provided by the Internal Revenue Service in Notice 2018-99 in December sets forth a four step process in determining how much of the cost of providing parking is nondeductible or taxable, respectively.  Where the parking is owned or leased by the employer, step 1 provides that the percentage of the total cost of parking that represents spaces that are reserved exclusively for employees are nondeductible by for-profit employers or taxable to exempt organization employers up to the $260 per month per employee excluded from their income.  Parking may be exclusively reserved for employees by a variety of methods, including signage or limiting access.

However, the Notice also contains an important election until March 31 of this year for an employer to change the characterization of some or all employee parking spots from reserved exclusively for employees to not so reserved and to treat those spots as not reserved retroactively to January 1, 2018.  This could save significant taxes for the 2018 tax year, but time is running out.

To change the characterization, the employer would have to change the method that made the parking reserved exclusively for employees such as signage or limited access.  Once the parking spaces are re-characterized, the remaining steps must be made to determine how much of the parking costs are nondeductible or taxable, respectively.  This includes determining how many spaces are reserved or primarily used (more than 50% of the time) for the general public, which are deductible by for-profit employers and not taxable to exempt employers.  If no spaces are reserved for employees or the general public, an allocation based on the typical use of the parking on a normal day between employee use and general public use must be determined.  Re-characterization could save taxes but like most things the numbers must be run.  This should be done before the meter expires at the end of this month.