Most American Churches will not be taxed.
Urban Churches may be at risk.
Pastors around America were shocked in 2018 when they realized that their churches may have to pay the Unrelated Business Income Tax (UBIT) to IRS because of parking for their employees. As illogical as this is, the 2018 TCJA law declared that the expense of providing free parking (and/or transit passes) for employees is deemed to be an item of Unrelated Business Income (UBI) to charities.
Thankfully, the IRS has issued a regulation that solves the parking lot problem for most American churches. To determine if your church is impacted, answer the following questions.
Does your church have parking spaces that are reserved for any or all employees?
If yes, your church has UBI. Continue reading.
If no, your church does not have UBI from TCJA. No action from the church is required.
If a church has UBI, there may be some relief available.
If reasonable, simply take down the signs that say “Employee Parking Only”. After the signs are removed, the church parking lot is deemed to be available to the public, and the church no longer has UBI. No 2018 filing is necessary if the signs are removed by March 31, 2019 as the IRS regulation deems the removal of the signs to have been on January 1, 2018.
If it is not feasible to remove the signs, the UBI calculation may still result in a zero (or very small) tax. Churches with UBI of under $1,000 need not file a Form 990T. Churches with UBI of $1,000 or more must file Form 990T by May 15, 2019 and pay the 21% tax at that time.
Urban churches which rent parking spaces for employees, or which provide transit passes to employees may have UBI requiring an annual tax filing and payment to IRS.
The calculations are complicated. If you either reserve parking spaces for employees or rent them call Wisdom Over Wealth for a free consultation and guidance on your church’s circumstances.