Who does this apply to?
Applies to all employers offering employee benefits.
What action must I take?
Please note the effective date for changes to each employee benefit.
On December 19, Congress passed the Tax Cuts and Jobs Act which includes a number of provisions impacting employee benefits. President Trump will sign the measure into law.
Key changes affecting employee benefits
Individual Mandate – Effective 2019, the Affordable Care Act’s individual shared responsibility (individual mandate) provision penalty will be reduced to zero. Note: The individual mandate is still in effect for tax years 2017 and 2018.
Qualified Transportation Plans – Effective 2018, the employer deduction for qualified mass transit and parking benefits has been eliminated (except as necessary for an employee’s safety). Additionally, exempt organizations will be subject to the tax on unrelated business income for any qualified transportation benefits provided to employees. The exclusion for qualified bicycle commuting reimbursements is suspended and unavailable for tax years after 2017 and before 2026.
Moving Expenses – From 2018 through 2025, employees will not be able to exclude qualified moving expense reimbursements from income or deduct moving expenses, except for certain active-duty members of the Armed Forces. In addition, job-related moving expenses paid for by the individual and not reimbursed by an employer are taxable.
Meals – Effective 2018, the deduction for expenses related to employee meals is repealed, but employees can continue to exclude the benefit from income. The 50 percent limit to de minimus fringe benefits to onsite eating facilities has also been expanded until December 31, 2025. After 2025, the employer costs for providing food and beverages to employees through an onsite facility are not deductible. The employees’ meal exclusions remain unchanged.
Other Fringe Benefits – Effective 2018, the legislation repeals the rule under code § 274 that allows a partial deduction for certain entertainment, amusement, and recreation expenses (including expenses for a facility used for these activities) if those expenses are sufficiently related to or associated with the active conduct of the taxpayer’s business. Additionally, deductibility of employee achievement awards is limited by a new definition of “tangible personal property”. It states that awards of tangible personal property may still be treated as deductible by the employer, but provides that tangible personal property exclude cash, cash equivalents, gift cards, gift coupons or gift certificates (except when employees can only choose from a limited array pre-selected or pre-approved by the employer). Other nondeductible awards include vacations, meals, lodging, theater or sports tickets, and securities. An additional provision removes peripheral equipment and computers from the definition of “listed property” for equipment used after 2017.
401(k) Plans – Under current rules for 401(k) plans and similar defined contribution plans, if a participant’s account balance in a qualified retirement plan is reduced to repay a plan loan and the amount of that offset is considered an eligible rollover distribution, the offset amount can be rolled over into an eligible retirement plan. However, the rollover must occur within 60 days. The tax act extends the 60-day deadline to the latest date on which the participant can file his or her tax return for the year of the loan default.
Employer Tax Credit for Paid Family and Medical Leave – Effective 2018, a new federal tax credit has been created for employers that provide paid family and medical leave to their employees. To receive the credit, employers must compensate their workers at least 50% of their regular wages and provide at least two weeks of leave. Depending on how much of a worker’s regular earnings the benefit replaces, the credit will range from 12.5 percent to 25 percent of the cost of each hour of paid leave. This provision is effective for wages paid in taxable years after December 31, 2017, and before January 1, 2020.
Inflation Adjustments – Effective 2018, many dollar amounts (including some benefit-related amounts) that use the Consumer Price Index for All Urban Consumers (“CPI-U”) to adjust for inflation will instead be adjusted for inflation using the Chained Consumer Price Index for All Urban Consumers (“C-CPI-U”).
Medical Expense Deduction – For 2017 and 2018, the threshold for claiming an itemized deduction for unreimbursed medical expenses is reduced to 7.5% of adjusted gross income from 10%. This also applies for purposes of the alternative minimum tax (AMT).