Saturday, October 2, 2004

The IRS yesterday issued Rev. Rul. 2004-98. The accompanying press release (JS-1974) explained that the ruling slammed the door on employees double dipping on employer reimbursement of parking expenses:

Generally, employer-provided parking, including employer reimbursements of parking expenses paid by an employee, are excluded from income and wages for employment tax purposes. Where the parking is provided pre-tax, however, employers cannot exclude the amounts twice by treating payments to the same employees as excludible reimbursements for parking.

Here’s an example from the ruling:

• Employee makes $1,500 per month and has net take-home pay of $1,301.45:

Monthly wages………… $1,500.00
FICA tax withholding…… (114.75)
Income tax withholding….(83.80)
Net after-tax pay………..$1,301.45

• Employee accepts employer’s offer to take $100 of Employee’s salary on a pre-tax basis for parking, reducing Employee’s taxable income by $100 and net take-home pay by $79.75:

Monthly wages………. $1,400.00
FICA tax withholding…. (105.00)
Income tax withholding…(73.30)
Net after-tax pay………$1,221.70

• To make Employee whole on a net after-tax basis, Employer pays Employee an additional $79.75 in cash:

Net after-tax pay………..$1,221.70
Additional payment …………79.75
Net after-tax pay………… 1,301.45

The IRS ruled that the Employer and Employee cannot treat the additional payment as a tax-free reimbursement of parking:

[S]ince pre-tax parking is provided by the employer, and not the employee, there is no expense by the employee that can be reimbursed with excludible funds. Further, the ruling states that the position that such payments are excludible reimbursements of qualified parking expenses is meritless

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