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CommentaryLocal Church Ministry

The Parking Lot Tax and Its Implications for Churches

By January 14, 2019January 2nd, 2020No Comments

UPDATE (12/21/2019): As we hoped for in early 2019, this week Congress and the President repealed the provision of law that burdened non-profit organizations with a 21% unrelated business income tax (UBIT) on transportation fringe benefits, including, for some organizations, their employee parking spaces. The repeal is retroactive to the law’s effective date of January 1, 2017 and non-profits who paid taxes under the provision may file an amended return to request a refund.


Tax reform law that went into effect in 2018 includes a requirement for churches and nonprofits to pay tax on the cost of parking space used primarily by employees. However, most GARBC churches will not be affected by this law, and there are easy steps they can take to make certain that they remain in compliance.

The recent major tax reform bill (Tax Cuts and Jobs Act of 2017) produced a seemingly unintended consequence for nonprofit organizations, including churches, that has been drawing attention since its first effective year came to a close at the end of 2018. The new law established an Unrelated Business Income (UBI) Tax on transportation fringe benefits provided to employees, including their use of the organization’s private parking lot. While this applies only in certain circumstances and most GARBC churches will not likely be affected, it is important for your church to review the use of its parking space to evaluate for a potential tax liability. Here are some common situations for churches and examples of how the law would apply in each of them:

  • Churches that own a parking lot and do not reserve any spaces for employees will need to evaluate for a potential tax liability only if more than 50% of the available spaces in the lot are used by employees. Many churches do not fall in this category, since they have a small number of employees but provide ample parking for parishioners.
  • Churches that own a parking lot and do reserve spaces for employees (even if only a few) will need to calculate the imputed taxable income attributed to those spaces. This calculation consists of all costs of maintaining the lot (such as repairs and maintenance, landscaping, security, lighting, etc.) multiplied by the percentage of spaces reserved. For example, a church that incurs $10,000 of annual expenses to maintain a lot with 5 reserved spaces and 95 unreserved spaces would have UBI of $500 ($10,000 x 5%).

Note: All churches should consider eliminating reserved employee parking, since this also eliminates the need to calculate potential UBI when less than 50% of all available parking is normally used by employees. Churches may take advantage of an extended deadline given by the IRS to eliminate reserved spaces. If the change is made by March 31, 2019, it will be considered effective for the 2018 tax year.

  • Churches that do not own a parking lot and that pay expenses for employee parking will incur UBI on all their costs associated with providing employee parking unless they add the value of the benefit to the employees’ taxable income and report it on Form W-2.

Finally, there is additional relief even for those churches that incur UBI as a result of their parking arrangements. If the overall UBI from parking (and any other sources) is less than $1,000 in a year, the church will likely be exempt from the requirement to file Form 990-T and pay tax for that year.

Many legislators have acknowledged that a tax on churches was not their intent when the new law was written and passed, so further discussions are expected as they seek ways to update or repeal this provision. If your church has questions about the law and how it affects your ministry, the GARBC Resource Center is ready to assist you. Please contact treasurer@garbc.org or call (847) 843-1600 for more information.