Major changes affecting not-for-profit organizations
It’ll come as good news to all tax-exempt organizations that the “parking tax” was repealed and, to many, that the private foundation excise tax rate was changed. Read on for the latest in tax law changes for tax-exempt organizations.
Changes to the Parking Tax and How it Affects Not-for-Profits
Under the 2019 Taxpayer Certainty and Disaster Tax Relief, the tax on fringe benefits implemented by The Tax Cuts and Jobs Act was retroactively repealed. Not only does this mean the tax is no longer imposed, but not-for-profit organizations can claim refunds of previously paid amounts related to this tax. This legislation is well known for its impact on employee parking and transit benefits.
Tax Rate for Excise Tax on Private Foundations
The same 2019 act that revoked the parking unrelated business income tax on tax-exempt organizations also included a welcome change to the tax rate for the excise tax on net investment income for private foundations. This is intended to simplify the structuring of the tax rate. Previously, private foundations saw varying tax rates based on the level of their grantmaking—comparing its grantmaking in that year to the average of the previous five years. While this encouraged private foundations to increase their grantmaking, it caused unnecessary complications and confusion.
For tax years beginning after December 20, 2019, the tax rate on the net investment income of private foundations is fixed at 1.39 percent under the Taxpayer Certainty and Disaster Tax Relief, replacing the prior system with tax rates of one or two percent.
Key Takeaways: Both of these major changes for tax-exempt organizations went into effect in December of 2019. Ultimately, they offer most not-for-profit organizations advantageous results and are likely to be well received.
Additional Tax Changes for NFPs
The IRS will allow charities to electronically file Form 1023 in attempt to improve the process and reduce errors while filing for tax exemption. This takes effect beginning January 31, 2020. Paper submissions will continue to be accepted during a 90-day grace period after the 31st.