House Extenders Package Includes UBIT Repeal

This week, the House Ways and Means Committee passed a tax extenders package that included a provision to repeal the 21 percent tax on certain employee benefits provided by associations. It now needs a full House vote.

The House Ways and Means Committee passed a tax extenders package on June 20 that includes a provision to repeal the 21 percent tax on certain employee benefits provided by associations and other nonprofits. ASAE and its UBIT Coalition have been pushing Congress to repeal the tax for more than a year.

The unrelated business income tax (UBIT), enacted as part of the GOP-led tax overhaul in 2017, is on the value of so-called fringe benefits, such as free parking and mass transit assistance, that nonprofit employers offer or are required to provide to employees. The tax is proving to be a huge burden for the nonprofit community, including churches and small charities that have little or no experience dealing with the IRS and insufficient guidance on how to calculate the value of parking and other benefits provided to their employees.

Earlier this week, a Ways and Means Oversight Subcommittee on the fringe benefits tax was cancelled. ASAE President and CEO John H. Graham, FASAE, CAE, had been scheduled as a witness, along with several other nonprofit leaders.

“It’s encouraging that House leaders have included repeal of the 21 percent tax on nonprofit employee benefits in this week’s markup,” Graham said this week. “This tax on fringe benefits like parking and transit assistance is a huge burden on the nonprofit sector and marks the first time tax-exempt organizations have been taxed on an expense and not an income-generating activity. In addition, the tax creates numerous compliance questions about how to value certain benefits, and saps valuable resources that organizations would otherwise use to fulfill their tax-exempt purpose. The sooner Congress can repeal this nonprofit tax, the sooner the nonprofit community can redirect its focus to mission-oriented activities that serve the public good.”

Repealing the tax had broad support from both Republicans and Democrats, though some GOP lawmakers had taken issue with offsets to pay for renewing the extenders in the broader package introduced by Ways and Means Committee Chairman Richard Neal (D-MA).

Neal has proposed paying for extensions of a slew of lapsed tax breaks by ending higher exemption levels for the estate tax at the end of 2022 instead of 2025 as currently scheduled. The package also includes Democratic priorities like expanding both the Earned Income Tax Credit and the Child and Dependent Care Tax Credit.

Ways and Means Committee Ranking Member Kevin Brady (R-TX) made clear that he supports repealing the tax on nonprofit benefits but does not support Neal’s extenders package which he characterized in his opening statement as a “spending spree.”

The tax package now needs a full House vote and then Neal will need to negotiate with the Republican-controlled Senate.

(uschools/iStock/Getty Images Plus)

Chris Vest, CAE

By Chris Vest, CAE


Got an article tip for us? Contact us and let us know!