(From AAFCPAs) Following the passage of the Tax Cuts and Jobs Act, the IRS has confirmed the taxation of qualified transportation benefits, whether provided directly by the employer, through a bona fide reimbursement arrangement, or through a compensation reduction agreement. For-profit entities are no longer able to deduct these qualified fringe benefits programs for their employees and nonprofit entities are now required to report them as unrelated business income (UBI).
Under the new guidance, clarified in the most recent revision of Publication 15-B, Employer’s Tax Guide to Fringe Benefits (for use in 2018), the IRS broadly defines pre-tax deferrals through cafeteria plans as a type of compensation reduction agreement. The new guidance requires tax exempt organizations to pick up these amounts as UBI and pay tax at the applicable corporate tax rates, which starting in 2018 will be a flat 21 percent.
The effective date for these regulations is January 1, 2018. AAFCPAs advises nonprofits with March 31, 2018, and June 20, 2018, year ends to plan accordingly, as this will likely require many clients to file a 2017 Form 990-T.
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