The Tax Cuts and Jobs Act has unleashed yet another disallowance.
Under §274(a)(4), employers are no longer allowed to deduct the costs paid or incurred to provide employee parking after December 31, 2017.
Examples of employee parking that will be impacted by this rule include, but are not limited to, the following:
- Parking is provided by the employer on or near the business in an employer owned garage or parking lot;
- Parking is provided by the employer on or near a location from which the employee commutes to the business;
- Parking is provided to the employee for free or at a reduced rate;
- Employers pay a third party for employees to park in a garage or parking lot; or
- Employers reimburse employees for the cost of parking.
For situations where the employer is not paying a third party for an employee’s parking, the expenses relating to the parking lot or garage may be limited. These expenses include rent or lease payments, repairs and maintenance, taxes, insurance, landscaping, and other expenses relating to the parking area.
If the parking area has spots exclusively reserved for employees, the expenses for the parking area will be disallowed. Employee parking would be deemed to be reserved in many situations, including specific signage or barriers to entry.
Expenses relating to parking that is available to the general public but is primarily used by employees are fully deductible if 50% or less of the actual or estimated use of the parking spots are used by employees during the business’s normal hours of operation.
For businesses that are impacted by this law, there is relief! Businesses have until March 31, 2019 to change their parking arrangements in such a manner that reduces or eliminates their reserved employee parking spots; thus, the employer would be able to treat those parking spots as unreserved, retrospectively to January 1, 2018.
We recommend that you review your current employee parking plans, and if possible, eliminate or reduce the number of reserved employee spaces to the minimum needed. We also recommend that you have an up-to-date count of parking spots and what they are primarily used for (i.e. customer parking, inventory parking, or employee parking).