On December 20, 2019, H. R. 1865 Further Consolidated Appropriations Act, 2020 (the “Act”) was signed into law as part of a spending bill to fund the government through September 2020. The Act repeals the “qualified transportation fringe benefits tax” paid by tax exempt employers.
The Act repeals Section 512(a)(7) of the Internal Revenue Code of 1986 which was passed as part of the 2017 Tax Cuts and Jobs Act. (TCJA). TCJA made qualified transportation fringe benefits (QTFB) such as parking, transit, and commute highway vehicles (e.g., vanpool) provided by nonprofit employers subject to the Unrelated Business Income Tax (UBIT). This UBIT tax on was based QTFB expenditures rather than income. QTFB remained tax free for the employee. Non-profit employers were required to pay a 21% tax on QTFB provided to their employees, even those employees who paid for parking, transit, or commuter highway vehicle costs through pretax salary reduction. As a result, nonprofit employers faced larger UBIT tax bills beginning in 2018. However, the Taxpayer Certainty and Disaster Tax Relief Act repealed Section 512(a)(7) retroactively so those nonprofit organizations that have already paid the tax may seek a refund of the taxes paid in the future (pending guidance from IRS).