Generally, assuming no other statutory exclusion applies, the amount by which the fair market value (FMV) of the qualified parking fringe benefit exceeds the sum of the amount excluded from gross income under IRC 132(a)(5), and the amount paid by the employee (if any), is wages subject to federal income tax withholding (FITW), Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax. IRC and Treas. Reg. IRC 132(a)(5) IRC 132(f)(1)(C) IRC 132(f)(5)(C) Treas. Reg. 1.132-9(b) IRC 61(a)(1) Treas. Reg. 1.61-21(b) IRC 274(a)(4) Resources (court cases, Chief Counsel Advice, Revenue Rulings, internal resources) Notice 2018-99, 2018-52 I.R.B. 1067 Publication 15-B, Employer's Tax Guide to Fringe Benefits PDF Analysis Any fringe benefit that is a "qualified transportation fringe" (QTF) is excluded from income (IRC 132(a)(5)) up to the amount of a monthly dollar limitation. A QTF includes qualified parking which is access to parking provided to an employee by their employer (1) on or near the employer's business premises, or (2) at a location from which the employee commutes to work, including by: (i) mass transit facilities, (ii) commuter highway vehicle, (iii) carpool, or (iv) transportation provided by any person in the business of transporting persons for compensation or hire. IRC 132(f)(5)(C); Treas. Reg. 1.132-9(b), Q&A-4(a). Parking provided by an employer includes parking that the employer pays for, either directly to a parking lot operator or by reimbursement to the employee, or provided on premises it owns or leases. Treas. Reg. 1.132-9(b), Q&A-4(d). The value of employer-provided parking is based on the general rules for valuing fringe benefits under Treas. Reg. 1.61-21(b)(2). Treas. Reg. 1.132-9(b), Q&A-20. Thus, the value of employer-provided parking is its fair market value (FMV), determined based on all the facts and circumstances such as: the cost that an individual would incur in an arm's-length transaction to obtain parking at the same site; or, if this is not ascertainable, then the cost that an individual would incur in an arm's-length transaction for a space in a comparable lot in the same general location under the same or similar circumstances; rates of parking available to the general public; and a valuation of $0, where similar parking is available free of charge to the employer's customers or where nonemployees wouldn't ordinarily pay to park where employer-provided parking is provided. Under IRC 132(f)(2), the amount of qualified parking excluded from the employee's gross income cannot exceed a maximum monthly dollar amount, adjusted for inflation. To see the monthly exclusion for any given year, refer to Publication 15-B, Employer's Tax Guide to Fringe Benefits, for that year. If the value of a qualified parking benefit received in any month is more than the limit, include in the employee's wages the amount over the limit minus any amount the employee paid for the benefit. You can't exclude the excess from the employee's wages as a de minimis fringe benefit. The excess is subject to FITW, FICA tax and FUTA tax. Treas. Reg. §1.132- 9(b), Q&A-9 and 23. Example 1. Each month of a year for which the maximum monthly exclusion for employer-provided parking is $270, Employer M provides parking valued at $290 a month to Employee E. Because the fair market value of the parking exceeds the maximum monthly exclusion by $20 a month, $240 would be includible in E's gross income for income and employment tax purposes for the year: ($290 − $270) x 12 months. Treas. Reg. § 1.132-9(b), Q&A-8. The value of the parking subject to tax is the right of access on any given day to employer-provided parking, and not the actual use of the parking by the employee. Example 2. Employee D has unlimited access to qualified parking provided by Employer M. During one particular month, D used the parking space 5 days, because D was away on business travel for 1 week and on a personal vacation for 2 weeks. Because D had access to the parking space for the entire month, the amount includible in D's gross income is the amount by which full monthly fair market value exceeds the statutory limit. When employer-provided parking is provided in conjunction with membership in a van or carpool, the individual to whom the parking space is assigned is considered the "prime member" and is responsible for the tax consequences of the parking. The statutory limit amounts of each carpool member may not be combined. If the parking space is not assigned to one van or carpool member, the employer must designate one of the members as the prime member. See Treas. Reg. 1.132-9(b), Q&A-21(f). The employer of the prime member is responsible for including the value in excess of the statutory limit in the prime member's wages for income and employment tax purposes. Treas. Reg. 1.132-9(b), Q&A-21(f). Generally, IRC 274(a)(4) provides that no deduction is allowed for the expense of providing any qualified transportation fringe (QTF) benefit (as opposed to the value of the benefit) to employees, including qualified parking. This is effective for amounts paid or incurred after December 31, 2017. However, exceptions apply where amounts are treated as wages for FITW purposes (IRC 274(e)(2)), as well as where facilities are available to the general public (IRC 274(e)(7)). Notice 2018-99, 2018-52 I.R.B. 1067. Issue indicators and audit tips Determine whether the taxpayer provides employer-provided parking for any of their employees. Request a list of employees entitled to receive employer-provided parking. Determine if the employer includes any portion of the benefit in employees' wages. Request the method used to determine the value of the parking benefit. If the value was not determined by Treas. Reg. 1.61-21(b)(2), you may need to conduct a survey of nearby parking facilities to determine the FMV.
