Nonprofits Hurt by UBIT Provisions in 2017 Tax Cuts and Jobs Act

New research commissioned by Independent Sector finds that changes in unrelated business income taxes (UBIT) mandated by the Tax Cuts and Jobs Act of 2017 will have significant costs for nonprofit organizations.  

The Act created two new sections of the tax code that will divert charitable resources toward federal coffers instead of community needs. Nonprofit organizations will now be required to pay a 21 percent federal 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.

Independent Sector partnered with researchers at the Urban Institute and the George Washington University to quantify the impact of these tax provisions. The survey, conducted in November 2018, reveals the estimated taxes, administrative costs, and other implications of the changes for a diverse group of nonprofit organizations.

Key Findings

The 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.
• As a percentage of budget size, this tax is a bigger burden to smaller nonprofits.
• About 10 percent of nonprofits are considering dropping these benefits entirely, even though many are required to maintain the benefits by local law.
• Requiring nonprofits to report unrelated income streams separately would redirect about $15,000 per year away from each affected nonprofit’s mission.

The report also explores the estimated impact of UBIT transportation fringe benefits tax on Washington, DC nonprofits.

The full report can be found on the Independent Sector website.