What Nonprofits Need to Know
Disclaimer: As of June 2025, the proposed legislation has passed the U.S. House of Representatives but is still under consideration in the Senate. The provisions described below are subject to change and may not become law in their current form.
The U.S. House of Representatives has passed new tax legislation that could significantly impact nonprofit organizations. If enacted, the bill would reinstate the Unrelated Business Income Tax (UBIT) on certain employee transportation benefits, reintroducing a rule that was previously repealed in 2019.
This change would take effect January 1, 2026, and would require nonprofits to report and potentially pay UBIT on the value of qualified transportation fringe benefits (QTFBs), even if they don’t engage in unrelated business activities.
What’s in the Proposal?
The legislation revives IRC Section 512(a)(7), originally enacted in 2017 and repealed retroactively in 2019. If passed, the following would be subject to UBIT:
- Employer-provided parking
- Transit or commuter passes
- Vanpooling or other employer-paid transit benefits
- Benefits paid through employee salary reduction plans
If passed, the effective date would be for benefits provided on or after January 1, 2026, and current language has exemptions for churches and certain religious organizations.
Example: What Could This Cost?
Let’s say your nonprofit provides 10 employees with downtown parking valued at $150/month:
- Annual Value: 10 × $150 × 12 = $18,000
- UBIT Owed (21%): $3,780
This would require filing Form 990-T and possibly making quarterly estimated payments.
Compliance Considerations
If the legislation becomes law, nonprofits will need to:
- Track all qualified transportation expenses
- Allocate shared parking between employee and public/mission use
- Calculate UBIT based on fair market value
- Reestablish Form 990-T filing processes
What Nonprofits Should Do Now
- Monitor the Legislation – The bill is now in the Senate and may be revised or removed.
- Evaluate Current Practices – Take inventory of any parking or transit benefits you currently offer.
- Estimate Potential Exposure – Begin modeling your potential UBIT liability for 2026.
- Budget for Compliance – Prepare for possible tax and administrative costs.
- Engage in Advocacy – Consider reaching out to organizations like the National Council of Nonprofits to voice concerns.
Need Help Navigating This?
As your trusted nonprofit advisors, the team at Creative Planning Business Services is here to help. Please request a meeting to go over questions or schedule a UBIT impact review.
