Many offices, plants and other business facilities are once again filled with real, live people. And those hard-working employees need somewhere to park. If your company provides employee parking fringe benefit, the IRS may take an interest in the arrangement. This includes either on or near your premises or at a location from which employees commute.
A recently revised IRS webpage intended for charities and nonprofits highlights the tax rules applicable to employer-provided parking and what the tax agency will want to know in the event of an audit. The content is informative for businesses as well.
Employers are allowed to provide tax-free parking to employees as a qualifying transportation fringe benefit. This applies under Internal Revenue Code Section 132(f). The qualifying dollar amount of parking expenses that may be excluded from an employee’s gross income cannot exceed a statutory maximum. This amount is subject to annual cost of living adjustments. For 2022, the maximum is $280 per month.
The IRS webpage explains that the value of employer-provided parking must be determined following the same general rules as those used for valuing other fringe benefits under Treasury regulations. These rules provide that an employer must include in an employee’s gross income the amount by which the fair market value of the benefit exceeds the sum of the amount, if any, paid for the benefit by or on behalf of the recipient. Any amount specifically excluded under other applicable rules must also be documented.
The fair market value, which is determined based on all the facts and circumstances, is generally the amount that an individual would have to pay for parking at the same or a comparable site in an arm’s length transaction.
The IRS webpage also provides tips for its auditors, who could encounter qualifying parking benefits as part of their examinations. The IRS advises its auditors to:
Valuation issues generally arise with respect to qualified parking only where it’s provided “in-kind” by the employer — in other words, where the employer provides parking at its own lot.
Does your company provide a qualifying parking benefit? If so, be sure to thoroughly document how you determine the value of that benefit. In case of an audit, you’ll need to produce the documentation. Our accounting firm can help you prepare for and fulfill your obligations during an IRS audit. Additionally, we can assist you in choosing fringe benefits and keeping accurate records of those you provide.