The 2017 Tax Cut and Jobs Act (TCJA) and subsequent Internal Revenue Service (IRS) draft guidance, “Parking Expenses for Qualified Transportation Fringes Notice 2018-99 (December 2018),” made significant changes to the tax treatment of transit and parking benefits for employers.

Because these affect the balance sheets of businesses and nonprofits, the number of employers offering parking and transit benefits may change, and thus the incentives for how people get to work. And while the tax changes are quite different for private businesses versus tax-exempt entities, there is a common theme: beginning in tax year 2018, outlays made to support employees getting from home to work will be more expensive for employers to provide, irrespective of how commuters travel.

Despite these recent changes, many employees still receive the tax savings of transit and parking programs courtesy of their employer. However, private businesses can no longer deduct employee transit or parking costs as a business expense, and non-profits need to pay Unrelated Business Income Tax (UBIT) on those costs. These are major changes applying to “Qualified Transportation Benefits” allowed under Section 132(f) of the tax code. TCJA also removed cycling benefits entirely until 2026.

If enforced, increasing the cost of employee parking to businesses could shift commuters away from cars and onto public transit, especially if employers respond by shifting those new costs to employees. And because around 30 percent of American workers receive parking benefits, changes to commuter benefit costs could substantially affect auto travel, transit ridership, air quality and land use. Outside the densest areas, the scope and impact of parking vastly exceeds that of transit benefits, even in transit-rich regions like New York. In practice, however, the opposite is likely to happen without further changes in law or regulations.

Absent rules and guidance different than what’s been offered to date, more employers are likely to drop their transit benefits than alter parking practices. While the value of transit and transit benefit programs has been widely acknowledged, employee parking is more common and many of its costs could escape taxation as they are so difficult to isolate and quantify. TCJA may add to existing tax incentives already favoring auto use, and reverse many years of progress in this area.

With 260 million private automobiles on the road and studies suggesting there are about 4 parking spaces per car, there may be a billion parking spaces in America. All these spaces generate or attract traffic, and require upkeep and replacement. It is not farfetched to suggest the aggregate cost of providing parking could be $1 trillion annually. Whatever the actual magnitude, it is safe to say that it is enormous and unmeasured. Few towns have even inventoried their parking supply.

Given the parking sector’s enormity, even small changes to tax policies for parking and transit benefits can greatly alter price signals sent to employees, with resultant effects on the decisions millions of employees make about travel to work.