The IRS has issued proposed regulations that provide guidance for the deduction of qualified transportation fringe (QTF) and commuting expenses. The Tax Cuts and Jobs Act (TCJA) disallowed deductions for qualified transportation fringe expenses as well as deductions for certain transportation and commuting expenses arising from travel between an employee’s residence and place of employment. (Originally, the TCJA also provided that a tax-exempt organization’s unrelated business taxable income is increased by the amount of nondeductible QTF expense, but that provision was retroactively repealed as part of the Further Consolidated Appropriations Act of 2020.)
The TCJA stopped employers from deducting amounts provided to employees as QTFs. The value of benefits such as transit passes, qualified parking, and bicycle commuting reimbursements can still be excluded from an employee’s gross income, but employers can no longer deduct the cost of providing those items.
These proposed regulations specifically address the elimination of the deduction for expenses related to QTFs provided to an employee of the taxpayer. The proposed regulations also provide guidance and methodologies to determine the amount of QTF parking expense that is nondeductible. The proposed guidance offers a general rule and three alternative “simplified methodologies” for allocating the cost of parking provided to employees in a facility that is owned or leased by the employer and includes parking that is available to the general public.
The guidance also includes definitions and special rules to clarify and simplify the calculations underlying the methodologies.
If you have questions about these new rules or the tax treatment of QTFs in general, please contact your CRI advisor to learn more.