The IRS offers guidance for qualified parking fringe benefits compliance.
Employees may exclude from income the cost qualified parking provided by an employer up to the IRS limit set forth under section 132(a)(5) of the Code. For 2022, the monthly exclusion for qualified parking is $280. The amount an employee pays for parking exceeds this dollar amount is wages subject to federal income tax withholding (FITW), Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax.
A qualified transportation fringe benefit is provided to an employee by the employer (1) on or near the employer's business premises, or (2) at a location from which the employee commutes to work, including by: (i) mass transit facilities, (ii) commuter highway vehicle, (iii) carpool, or (iv) transportation provided by any person in the business of transporting persons for compensation or hire. Parking is considered provided by an employer if the employer pays for the parking (either directly to a parking lot operator or by reimbursement to the employee), or if the employer provides the parking premises it owns or leases.
The value of employer-provided parking is based on the general rules for valuing fringe benefits under the Internal Revenue Code. This means the value of employer-provided parking is its fair market value (FMV), determined based on all the facts and circumstances, including:
- the cost that an individual would incur in an arm's-length transaction to obtain parking at the same site; or, if this is not ascertainable, then
- the cost that an individual would incur in an arm's-length transaction for a space in a comparable lot in the same general location under the same or similar circumstances;
- rates of parking available to the general public; and
- a valuation of $0, where similar parking is available free of charge to the employer's customers or where nonemployees wouldn't ordinarily pay to park where employer-provided parking is provided.
The amount of qualified parking which may be excluded from income cannot exceed a maximum monthly dollar amount, adjusted for inflation ($280 in 2022).
If the value of a qualified parking benefit received in any month is more than the limit, the excess amount must be include in the employee's wages, minus any amount the employee paid for the benefit. The excess is subject to FITW, FICA tax and FUTA tax.
Employers with a qualified parking benefit should consider the IRS’ issue indicators and audit notes, which include
- Determining whether the employer provides employer-provided parking for any of their employees.
- Request a list of employees entitled to receive employer-provided parking.
- Determine if the employer includes any portion of the benefit in employees' wages.
- Request the method used to determine the value of the parking benefit.
- If the value was not determined by Treas. Reg. 1.61-21(b)(2), conduct a survey of nearby parking facilities to determine the FMV.
A qualified parking benefit is useful for employees but must be managed correctly to comply with federal tax laws. The IRS website for qualified parking fringe benefits may be accessed by clicking here.
