Transportation Benefits. Tax Free Travel? Not Anymore.
Tax free transportation benefits have been a great way for employers to give employees a nice little perk. The transportation benefits are taken out of an employees paycheck and the employee doesn’t need to pay tax on that income. Pretty nice.
Tax reform didn’t take this away for the employees, but it did implement a “penalty” for business owners when they grant employees any of the following qualified tax-free transportation fringes:
- Qualified parking
- Transit passes
- Certain commuter transportation costs
The penalty tax on the qualified tax-free transportation fringes applies to the business owner. It works like this: the business gets no tax deduction for the qualified tax-free transportation fringe benefits.
Jackie is in the 35 percent tax bracket, operates her business as an S-Corp, and has 14 employees. Her penalty tax rate on the loss of her S-Corp’s transportation fringe benefits deduction is 35 percent.
Employees continue to receive the benefits tax-free as before.
You reimburse your employee James for mass transit commuting fees. It costs you $3,160 for tax year 2018. James gets the mass transit benefit free of tax, but you don’t get a tax deduction for the $3,160.
But in some locations, including Washington, D.C., New York City, San Francisco, and Los Angeles, you may be required to pay for Fred’s mass transit, depending on the number of employees that you have. In such cases, you can’t stick it to James. You simply get the short end of the stick.
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