June 18, 2018

Element of the New Tax Law will Negatively Impact New York Nonprofit Organizations (article)

The Tax Cuts and Jobs Act (TCJA) is presenting an expensive and undesirable ripple effect on not-for-profit
organizations that is also subject to New York City's Commuter Benefits Law – a change that was
unforeseen when the employee benefit took effect more than two years ago.

Starting this year, not-for-profit organizations in New York City are now required to pay a new tax that could cost businesses and organizations as much as $936 per employee, per year.

When the Commuter Benefits Law went into effect Jan. 1, 2016, it required for-profit and not-for-profit employers in New York City with more than 20 full-time, non-union employees to allow their employees to use pre-tax income to pay for transportation costs to-and-from work. Employees, under federal tax law, can spend up to $260 a month on qualified transportation benefits like New York City regional mass transit services, ferry and water taxi services, and vanpool services.

This element of the TCJA puts not-for-profit organizations in New York City in a different position all together. Under this new law, organizations that provide qualified transportation fringe benefits must now report those expenses as unrelated business taxable income (UBTI). The new federal law applies a 21 percent tax rate for amounts paid or incurred after Dec. 31, 2017 and New York State adds a 9 percent tax, causing not-for-profit organizations to owe 30 percent on what was previously untaxed.

Not-for-profit organizations in states and cities without a commuter benefits law could, at the advice of legal counsel and tax advisors, consider providing alternatives to their qualified transportation benefits program, to avoid the flat tax that comes with UBTI. However, because New York City requires employers to provide these commuter benefits on a pre-tax basis – now considered UBTI for nonprofits – organizations can’t simply discontinue their qualified transportation benefit programs to avoid triggering the tax. This also applies to Washington D.C. and the San Francisco Bay area, where nearly identical commuter benefits laws are in place. Benefits considered UBTI under the new tax law include parking subsidies, bus passes, qualified bicycle reimbursements, and on-premises athletic facility expenses. Parking expenses are not covered under New York City’s Commuter Benefits Law. So, while not-forprofit organizations in New York City aren’t forced to offer parking, if they do, the tax applies and they must choose between paying more taxes or cutting employee benefits.

As currently written, this provision of the Tax Credits and Jobs Act will negatively impact the majority of not-for-profit organizations in New York City. State Senators from Districts 61,12, 17, 22, and 31 introduced bill S8831/A11051 to correct this. This bill has moved rapidly through the senate and is currently on the voting calendar. If you would like to read the contents of this bill, it is available to you through State Assembly and New York Senate websites. You can reach out to your state representatives to make your thoughts known.

The IRS has also made a public comment form available. To comment on this issue, type "Form 990-T" into the Form/Instruction/Publication box.

The Nonprofit Coordinating Committee of New York has made a number of resources available on their website.

The Not-for-Profit practice of the CBIZ New York City office is committed to keeping you informed about issues that will impact your organization. We are available to assist with any questions you may have.

Scott J. Goldberg: sgoldberg@cbiz.com | 212.790.5713

Gail Roth: groth@cbiz.com | 212.790.5911

Copyright © 2018, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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