New Research Finds Two Provisions in 2017 Tax Law Will Cost Nonprofits Thousands

Nonprofits will be required to pay a 21 percent federal tax on the cost of employee transportation benefits and to calculate unrelated income streams in a way that increases tax burden

(WASHINGTON, January 24, 2019) New research commissioned by Independent Sector finds that two tax provisions related to unrelated business income divert thousands of dollars from nonprofit missions to the federal government.

The 2017 Tax Cuts and Jobs Act included provisions that will require nonprofits to pay a 21 percent tax on the cost of employee transportation benefits, including transit and parking, and to calculate unrelated income streams in a way that increases tax burden.

“These provisions divert precious funds away from missions and the communities who need it most,” said Daniel J. Cardinali, president and CEO of Independent Sector. “We heard from nonprofit leaders who were concerned about the impact of these taxes and confused about how they were going to be implemented. We commissioned this research to educate the nonprofit community and urge Congress to quickly repeal these two provisions.”

Independent Sector partnered with researchers at the Urban Institute and the George Washington University to quantify the impact of these tax provisions. A survey of more than 700 nonprofit organizations found that the new tax on transportation fringe benefits will divert an average of about $12,000 away from each nonprofit’s mission per year. The survey also found that as a percentage of budget size, this tax is a bigger burden to smaller nonprofits. About 10 percent of nonprofits reported that they are considering dropping these benefits entirely.

The survey also found that requiring nonprofits to report unrelated income streams separately would redirect about $15,000 per year away from the mission-related work of each affected nonprofit organization.

Independent Sector, jointly with the Council on Foundations, will be sponsoring a Capitol Hill briefing at 4:00 pm on Tuesday, February 5 to educate policymakers and their staff about the impact of these tax provisions on nonprofits. If you’d like to attend, please email kristinac@independentsector.org.

To learn more, visit independentsector.org/ubitresearch.

Independent Sector is the only national membership organization that brings together a diverse set of nonprofits, foundations, and corporations to advance the common good. Learn more at independentsector.org.

Contact:
Kristina Gawrgy Campbell
202-467-6144
kristinac@independentsector.org

Types: Policy Update, Press Release
Global Topics: Administration, Congress, Data, Public Policy
Policy Issues: Federal Budget & Fiscal Policy, Nonprofit Operations, Tax & Fiscal Policy, Tax Reform, UBIT