New federal law requires churches to begin paying a 21% tax on employee benefits including parking

As the Tax Cuts and Jobs Act passes the 6-month mark, controversy has arisen over a largely hidden requirement on churches and nonprofits to begin paying a 21% tax on employee benefits including parking, transportation, and other related benefits. The provision will cause nonprofit organizations (including churches) to file federal income tax returns and pay unrelated business income tax on the cost of parking provided to employees.
 
In addition to filing federal income tax returns, many nonprofit employers affected by the new law will also be required to file state income tax returns and possibly pay a state income tax as a result of the new federal income tax.

The cost of compliance for churches and nonprofits could run into the tens of thousands of dollars annually.

The new tax appears to have initially escaped the notice of a number of lawmakers who approved the bill, including those who seek to protect the interests of nonprofits. Now several months later, many charitable organizations are still unaware of the tax, and for those that are cognizant of the new requirement, there is a great deal of confusion as to how the tax should even be calculated.

According to a recent Politico article, House Ways and Means Committee Chairman Kevin Brady defends the provision because it creates “greater parity” between for-profit and nonprofit organizations.

Michael Batts, ECFA Board of Directors chairman and partner in the accounting firm Batts Morrison Wales and Lee, responds to this assertion in the article, saying, “The whole idea of tax exemption for nonprofit organizations that are doing charitable, religious, and educational work is for them not to be on the same playing field as for-profit businesses when it comes to taxes, in order to incentivize the good work they do to make our society better.”

In early June, Rep. Michael Conway (R-Texas) introduced legislation to kill the tax. In addition, ECFA has begun circulating a position statement which advocates for the repeal of the burdensome tax either by legislation or effectively by action of the Treasury Department. As of this news release, over 1,100 organizations have signed on to the position statement.

If your church or nonprofit organization has not already been added to the position statement, please consider doing so here.

ECFA will continue to advocate for the interests of charitable organizations on Capitol Hill, and updates will be posted on our “In the News” section of the website.