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IRS clarifies applicability of new law that disallows employer deduction for qualified transportation benefits

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Tax Hot Topics newsletterA provision in the newly enacted tax reform law, commonly known as the Tax Cuts and Jobs Act, eliminates an employer’s tax deduction for qualified transportation fringe, including mass transit and qualified parking, provided to employees.

Some taxpayers have taken the position that money used by an employee to pay for qualified transportation through a pre-tax elective salary reduction arrangement is still deductible by the employer. In the IRS’s revised Publication 15-B for 2018, the IRS stated that “no deduction is allowed for qualified transportation benefits (whether provided directly by [the employer], through a bona fide reimbursement arrangement, or through a compensation reduction agreement) incurred or paid after Dec. 31, 2017.”

The Publication 15-B makes it clear that an employer is not allowed a deduction for pre-tax elective payroll reductions if the amounts is used for qualified transportation benefits. These include any payment, reimbursement, or transportation provided by the employer in connection with travel between an employee’s personal residence and place of employment, excluding travel costs necessary for employee safety.

Contact
Eddie Adkins
Partner,
Washington National Tax Office
T +1 202 521 1565

Jeffrey Martin
Partner,
Washington National Tax Office
T +1 202 521 1526

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