United States: IRS Offers Guidance On Applying Test For Deductibility Of Parking Expenses

The Tax Cuts and Jobs Act of 2017 (TCJA) generally eliminated employer deductions for expenses incurred to provide employee parking benefits but left intact deductions for expenses associated with parking provided for customers and the general public. Because nondeductible employee parking expenses are often closely intertwined with deductible general public or customer parking expenses, employers may have difficulty distinguishing between the two under the TCJA.

To address this issue, the Internal Revenue Service (IRS) intends to propose regulations distinguishing nondeductible employee parking expenses from those associated with customers and the general public. Until those regulations are effective, taxpayers can rely on the guidance that the IRS issued in Notice 2018-99 to allocate parking expenses between nondeductible employee parking expenses and deductible parking expenses for the general public and customers.

Impact of the TCJA

Prior to the TCJA, employers were permitted to deduct expenses incurred to provide qualified transportation fringe benefits (QTFBs) to employees. Deductible expenses included qualified parking, transit passes, vanpool benefits, and bicycle commuting reimbursements. "Qualified parking" is parking provided to employees near the employer's business premises or near a location from which employees commute to work (excluding employees' residences).

With one exception addressed below, the TCJA generally disallows any employer deduction for providing qualified parking to employees. As updated by the act, Section 274(a)(4) of the Internal Revenue Code now disallows employer deductions for amounts incurred to provide QTFBs, such as qualified parking, to employees. Similarly, for tax-exempt employers, Code Section 512(a)(7) increases unrelated business taxable income (UBTI) for any disallowed deduction for expenses incurred to provide employees with QTFBs.

Purpose of Notice 2018-99

Although the TCJA disallows deductions for qualified employee parking expenses, employers are still permitted deductions for ordinary and necessary businesses expenses, including expenses incurred to provide and maintain parking for the general public and for customers. However, the act does not specify how to apportion deductible and nondeductible expenses when an employer provides a common lot for use by employees, customers, and/or the general public.

Therefore, the IRS issued Notice 2018-99 to provide interim guidance on this and similar issues until regulations can be promulgated.

Employer Pays a Third Party for Employee Parking

Generally, amounts paid by an employer to a third party for employee parking are nondeductible under Code Section 274(a)(4). This is most applicable to employers that operate in urban areas and provide employee parking via third parties' parking facilities due to limited street parking and the high cost of real estate. The nondeductible portion is equal to the taxpayer's total annual cost of employee parking paid to the third party.

However, when expenses paid for an individual employee's parking exceeds the monthly exclusion amount in Code Section 132(f)(2) ($265 per month for 2019), any amount in excess of the monthly exclusion is imputed as income to the employee, subject to wage withholding and reporting. The employee must pay income tax on these amounts, and the employer is permitted a matching deduction for the portion included in employee income.

Employer Owns or Leases Parking

Until regulations are released, employers that own or lease parking facilities may use any reasonable method to allocate their parking expenses between nondeductible employee parking and deductible customer/general public parking. However, these calculations must be based on the employer's expense to provide the parking spaces, according to the notice; an allocation based on the parking benefit's value to employees will not be considered reasonable.

These considerations may be more applicable to employers with businesses in suburban or rural locations, where free parking is provided to employees and customers.

The notice focuses on allocating parking expenses between deductible and nondeductible amounts based on the use of the parking spaces. Under this approach, each parking space is deemed deductible or nondeductible. The employer may then deduct the proportion of total parking expenses based on the ratio of deductible parking spaces to total parking spaces. Beginning in 2019, to be considered reasonable, the expense allocation method used must allocate expenses to reserved employee parking spaces.

The notice provides a four-step methodology that the IRS deems reasonable, whereby the first three steps each classify a category of parking spaces as deductible or nondeductible. Each step is applied in sequential order. To the extent the first three steps do not categorize all of the parking spots as either deductible or nondeductible, any uncategorized parking spaces are evaluated in a "reasonable" manner in step 4.

  1. Reserved employee spaces. Any parking spaces reserved for employees are nondeductible. Such parking spots may be reserved under a number of methods, including signs (e.g., "Employee Parking Only"), assigned spaces, and/or designated areas.
  2. Spaces available to the general public and employees. Step 2 evaluates the primary use of all remaining parking spaces as a whole during normal hours on a typical business day. (Parking spots that generally remain empty are considered to be for public use.) If more than 50 percent of these remaining spaces are for use by the general public (including customers), then all of these remaining spaces are deemed deductible. If not, then the employer proceeds to steps 3 and 4.
  3. Reserved nonemployee spots. If the spaces evaluated in step 2 were not deemed primarily for public use, any parking spaces reserved for nonemployees are deemed deductible. Such spots may be reserved by a variety of methods, including signs and/or designated areas.
  4. Other spots. Any remaining uncategorized parking spaces are categorized using a reasonable method based on their normal use. The portion of these parking spaces normally used by employees is deemed nondeductible, and the remaining portion is deemed deductible.


Employer Big Box spends $1,000 annually to provide and maintain a parking lot with 100 spaces, 10 of which are reserved for Big Box managers and 35 of which are designated for customer parking only. Other Big Box employees typically occupy 50 of the non-reserved spaces, while the remaining spaces are normally occupied by customers or the general public, or go unused.

Step 1: Ten percent (10 out of 100) of the spaces are reserved for employees; therefore, 10 percent of Big Box's parking expenses are nondeductible.

Step 2: The remaining spots are deemed not to be primarily for public use because the majority (50 out of 90) of the remaining spaces are generally used by employees.

Step 3: Thirty-five percent (35 out of 100) of the spaces are reserved for customer parking only. The expenses associated with these parking spaces are deductible.

Step 4: Because 5 percent (5 out of 100) of the unmarked spaces are normally occupied by customers or the general public, or go unused, expenses incurred are deductible.

The notice provides numerous other examples highlighting each of the four steps.

Application to Tax-Exempt Organizations

Like taxable organizations, tax-exempt organizations are impacted by the TCJA's changes to the treatment of QTFBs. The notice requires tax-exempt organizations to categorize parking expenses in the same manner as taxable organizations. However, these organizations are ultimately treated differently due to their tax-exempt nature, where deductions to reduce taxable income do not apply. Instead, tax-exempt organizations are subject to UBTI.

Tax-exempt organizations must increase their UBTI by any employee parking expense deemed nondeductible. Note that even though these nondeductible expenses increase the organization's UBTI, providing employee parking is not itself considered an unrelated trade or business (tax-exempt organizations with more than one unrelated trade or business receive different treatment).


Though the notice provides helpful guidance regarding the allocation of parking expenses in various situations, some questions remain.

For example, one of the challenges employers may face is determining the expense incurred for parking if access to parking facilities is part of a lease agreement. It is unclear how and whether an employer is required to allocate parking expenses in a lease agreement that does not separately identify the amount attributable to parking. Trying to apply the four-step methodology to such a situation may become more complex in the event the parking facility is shared among tenants.

In preparation for future regulations, the IRS has requested comments concerning treatment of expenses paid for nondeductible employee parking. However, it is unclear when these regulations may be issued.

This article was published in the April 2019 issue of BLR's newsletter, "The Employer's Guide to Fringe Benefit Rules."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions