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 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
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.