Beginning in 2018, a tax-exempt organization’s unrelated business taxable income (“UBTI”) will be increased by the amount the organization pays or incurs for qualified transportation fringe benefits, whether they are paid as an employer-funded benefit or through employee pre-tax salary deductions. As such, providing this benefit to your employees will result in an unrelated business income tax liability and tax filing obligation on a Form 990-T. In addition, this tax expenses should be considered for future budgeting purposes.
Although some employers may wish to stop offering this benefit as a result of this change in the law, please consult with your legal counsel as some cities mandate that certain employers offer to their employees a commuter benefits program (such as New York City’s Affordable Transit Act and similar laws in Washington D.C. and the Bay Area in California).
Furthermore, under the Tax Cuts and Jobs Act, each unrelated business activity must be separately reported on Form 990-T. As such, the unrelated business activity losses of one activity may not be used to offset the unrelated business income of another activity. Therefore, the unrelated business income arising from providing transportation fringe benefits to employees cannot be offset by any other unrelated trade or business activities that may produce losses.