Most adults know the significance of April 15th. Yes, it’s tax day – the date by which American taxpayers have to file their taxes. But are you aware that May 15th is nonprofit tax day? You may be perplexed because nonprofits are tax-exempt organizations…yet, because of changes implemented in the Tax Cuts and Jobs Act (TCJA), nonprofits have to pay taxes on certain benefits.
The TCJA included a new unrelated business income tax (UBIT) on the expenses of nonprofits that provide employees with transportation benefits, such as transit passes and parking. This means that when one visits their local Goodwill®, if there is a parking lot that is only for employees, Goodwill has to pay a tax on each space. Research shows the new tax would divert an average of $12,000 annually from a nonprofit’s mission. For local Goodwill organizations, this is funding that could otherwise be used to provide critical workforce development and job training programs in communities.
Furthermore, about 10 percent of nonprofits are considering dropping transportation and parking benefits altogether. The nonprofit sector is the country’s third largest employer. A great number of employees could be negatively impacted if these benefits are removed. Some cities, including Washington DC, New York and San Francisco, have mandated that employers provide pre-tax mass transit benefits, so employers in those cities do not have the option of changing those benefits to avoid being taxed.
Members of Congress have realized that this new tax is harmful to nonprofits. A provision repealing the tax was included in an end-of-year tax bill in 2018 that passed the House, but was not taken up in the Senate. A number of bipartisan and bicameral bills have been introduced this Congress, which would eliminate the new tax. On the heels of nonprofit tax day, it is important that more people are informed of this issue and that lawmakers are urged to act on these bills.