As part of the Tax Cuts and Jobs Act of 2017, tax-exempt organizations were required to pay an unrelated business income tax (UBIT) of 21% on the value of transit and/or parking benefits offered to employees, under section 512(a)(7) of the Internal Revenue Code. This included organizations who offered transportation benefits through a pre-tax payroll deduction as well as through a monthly subsidy, causing many organizations to re-evaluate or eliminate their transit benefit.
On December 20, 2019, the Further Consolidated Appropriations Act, 2020 was enacted. It included the repeal of UBIT for tax-exempt organizations providing qualified transportation benefits. This means that hospitals, universities, nonprofits, and associations will continue to be able to offer these benefits without penalty, providing employees with affordable access to their worksites. We thank the Association for Commuter Transportation (ACT) and other organizations for their advocacy and work to repeal this legislation.
The repeal of section 512(a)(7) is retroactive to its original effective date of January 1, 2018. This means if your organization previously filed Form 990-T to pay tax on transportation and/or parking benefits, you can now receive a refund.
To file a refund claim, submit an amended Form 990-T by following these three steps:
1. On the for Form 990-T, write "Amended Return - Section 512(a)(7) Repeal"
2. Follow these instructions for completing the amended form, according to the original year filed
3. Attach a statement indicating the line numbers on the original return that were changed and the reason, for example, "repeal of Section 512(a)(7)."
It's important to note that the time limit to apply for a refund is three years from the time the original Form 990-T was filed, or two years from the date the tax was paid, whichever is later.
Reinstate Transit Benefits
If your organization eliminated a pre-tax or subsidized benefit for transit in reaction to the UBIT required on qualified transportation benefits, Arlington Transportation Partners (ATP) can help you re-establish a commuter benefits program at your worksite. Reach out to us to obtain information on competitive transit benefit programs, connect with SmartBenefits or a third-party provider, or receive sample transit benefit policies and agreement forms.
Photo Credit: Sam Kittner/Kittner.com for Arlington Transportation Partners