A new tax on transportation fringe benefits that some charities offer their employees will cost an average of $12,000 per nonprofit, prompting some to consider ending those perks, according to a new study.
The provision, included in the 2017 Tax Cuts and Jobs Act, requires nonprofits to pay a 21 percent federal tax on the cost of employee transportation benefits, including transit and parking passes.
A separate accounting provision in the law would add $15,000 in compliance costs per nonprofit, according to the study.
Independent Sector partnered with the Urban Institute and George Washington University for the report, one of the first detailed studies on the impact of the tax law on nonprofits.
“These provisions divert precious funds away from missions and the communities who need it most,” said Dan Cardinali, president of Independent Sector, in a news release. “We heard from nonprofit leaders who were concerned about the impact of these taxes and confused about how they were going to be implemented. We commissioned this research to educate the nonprofit community and urge Congress to quickly repeal these two provisions.”
The survey included 723 nonprofits with a total of $9.5 billion in annual revenue. However, the study’s authors cautioned that the results are not representative of the whole nonprofit sector because they were drawn from organizations that were motivated to respond.
About 10 percent of the groups said they are considering dropping their transportation benefits as a result of the tax-law changes.
The highest share of organizations reporting that they offered transportation benefits were those focused on the arts, culture, and humanities (31 percent), followed by those focused on public and social benefit (16 percent).
Pushing for Changes
Nonprofit leaders are working to get the provisions repealed in a follow-up tax bill. Independent Sector and the Council on Foundations will sponsor a Capitol Hill briefing in February to bring the issue to the attention of policy makers.
In the report, some nonprofits said they were unsure whether the new tax provisions apply to them. For example, one group owns a parking lot that employees use and says it’s unsure if it’s required to pay the transportation tax so it isn’t going to. “Guidance seems murky at best,” the nonprofit said in the report.
The report noted that the tax provision may be particularly burdensome for nonprofits in certain jurisdictions, such as the District of Columbia, Berkeley, Calif., New York, Richmond, Calif., San Francisco, and Seattle, where they are required to provide transportation benefits.
Correction: A previous version of this article said Richmond, Va., is one of the cities that requires nonprofits to provide transportation benefits. It should have said Richmond, Calif.