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  • Halverson & Company

Non-Deductible Parking

The Tax Cuts and Jobs Act (TCJA) modified Internal Revenue Code Section 274(a)(4) which states that no deduction is allowed for qualified transportation fringe benefits. Qualified transportation is defined under IRC Section 132(f) and includes fringe benefits such as mass transit benefits, vanpools, qualified parking, and other commuter benefits. One area of this section that has been difficult to determine is the nondeductible amount of parking expenses. At first, the steps for calculating employee parking expenses were unclear, which led the IRS to release Notice 2018-99 to provide taxpayers with more specific instructions and interim guidance on how to do so.

Parking Expenses

Under IRS Notice 2018-99, the employer is required to determine “total parking expenses”, which includes repairs, maintenance, utilities, insurance, property tax, interest, snow removal, trash removal, cleaning, landscaping, parking attendant expenses, security, rent or lease payments or a portion of rent or lease payments if not specifically identified. There are certain expenses that are not subject to the disallowance rules under Section 274(a)(4) such as:

  • Expenses for parking to partners/2% shareholders, sole proprietors, and independent contractors

  • Expenses for parking to employees for the portion of the benefit that is included in their compensation under IRC Section 132

  • Expenses for parking made for the general public

  • Depreciation expense on a parking structure

  • Expenses for items not located on or in a parking facility such as landscaping, lights near a parking structure such as a walkway.

After determining “total parking expenses”, the notice provides two methods for calculating the disallowed deduction.

The Methods

The first method is for those employers who pay a third party for parking. The deduction disallowance is calculated as the taxpayer’s total annual cost of employee parking paid to the third party.

  • For example, an employer pays a third party parking garage $100.00 per month for each employee and has a total of 10 employees using the garage. The annual disallowance for that parking garage is $12,000.

The second method is for employers who own or lease parking facilities and the notice provides the employer may use any reasonable method to calculate the nondeductible portion. If a method uses the value of employee parking instead of the expenses paid or incurred, it will not be considered a reasonable method. The notice provides an outline of a reasonable method using a 4-step calculation, which is listed below:

1. Calculate disallowance for reserved employee spots: first, determine the percentage of reserved employee spots compared to total parking spots, and then multiply this percentage by the total parking area expenses. Next, subtract the nondeductible amount for reserved employee parking from the total expenses.

  • For example, an employer owns a parking lot with 500 parking spots, and the total annual parking expense is $20,000. 50 of those spots are specifically reserved for the employer’s executives. The employer is not allowed a deduction under this step for $2,000 of the total annual parking expenses ($20,000 x [50 / 500]). In the notice, the IRS provides a grace period until March 31, 2019 for employers to modify their parking arrangements to reduce or eliminate reserved employee parking spots. Any such changes will be applied retroactively to Jan. 1, 2018, for purposes of the notice.

2. Determine primary use of remaining spots: Are more than 50% of the parking spots available to the general public? If so, parking expenses remain deductible. If this is not the case, see step 3.

  • For example, a restaurant has 50 parking spots and 15 of those spots are used by employees. Since the remaining spots are for the general public are in excess of 50%, all of the parking expenses is deductible.

3. Calculate the allowance for reserved non-employee spots, such as those set aside specifically for visitors or customers: determine the percentage of such spots compared to the total, and multiply that percentage by the employer’s remaining total expenses after subtracting the nondeductible amount from step 1.

  • Consider the same facts in the Step 1 example. Forty-five of the remaining 450 spots (or 10%) are specifically reserved for nonemployees. Thus $2,000 of the $20,000 total annual parking expense is deductible and not subject to Section 274(a)(4) under this Step 3.

4. Determine remaining use and allocable expenses: if parking expenses remain that are not deductible or nondeductible based on the previous steps, then allocate them based on a reasonable determination of actual or estimated employee usage. You may consider the actual usage based on the number of employees, hours of use, or other measures.


  • Remove any reserved employee parking signs to remove the exposure in Step 1

  • Determine parking expenses and look for opportunities to reduce those expenses

  • Survey usage of parking spots by employees and document for records

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