Tax Cuts and Jobs Act: Employee Benefits
There are a few employment-related changes in the new tax bill which could require companies to rework internal policies or accounting immediately in 2018.
NEW
Credit for employers providing paid family and medical leave
For tax years beginning after 12/31/17, an employer that offers at least two weeks of annual paid family and medical leave, as described by the Family and Medical Leave Act (FMLA), to all “qualifying” full-time employees (proportionate for non-full-time employees) will be entitled to a tax credit. The paid leave must provide for at least 50% of the wages normally paid to the employee. “Family and medical leave” does not include leave provided as vacation, personal leave, or other medical or sick leave.
A “qualifying employee” is an employee who has been employed by the employer for at least one year, and whose compensation for the preceding year did not exceed 60% of the compensation threshold for highly compensated employees (i.e., compensation did not exceed $72,000).
The credit will be equal to 12.5% of the amount of wages paid to a qualifying employee during such employee’s leave, increased by 0.25% for each percentage point the employee’s rate of pay on leave exceeds 50% of the wages normally paid to the employee (but not to exceed 25% of the wages paid).
Time to repay employer-sponsored retirement loans
Old Law: Retirement plan loans were generally immediately due and payable when the plan terminated or the participant terminated employment. If the loan was not repaid, the plan would offset the loan against the participant’s account. This loan offset may be rolled over by making an equivalent contribution to an IRA or another qualified plan, but this had to be done within 60 days of the date of the offset.
New Law: For tax years beginning after 12/31/17, the period to roll over a loan offset is extended to the individual’s due date for the tax return for the year in which the offset occurred (including extensions).
What does this mean? You should review your company retirement plan loan distribution paperwork and determine whether any prospective modifications need to be made.
Moving/relocation expenses
Old Law: An employer could exclude qualified moving expense reimbursements from an employee’s wages for both income and employment tax purposes. Likewise, employees could claim a deduction for qualified moving expenses.
New Law: For tax years beginning after 12/31/17, qualified moving expense reimbursements are no longer excluded from wages except for Armed Forces on active duty, and are no longer deductible by the employee.
What does this mean? You should review your company policies relating to moving/relocation expenses and adjust them accordingly. Any reimbursements of these expenses to employees or direct payments of moving expenses on behalf of employees (e.g. payments directly to a moving company) should be treated as taxable compensation to the employee going forward.
Employee achievement awards
Old Law: An employer could deduct up to $400 (or up to $1,600 in the case of certain written nondiscriminatory achievement plans) of the value of certain employee achievement awards for length of service or safety. The employee receiving such award can exclude the award from income to the extent that the value of the award does not exceed the employer’s deduction.
New Law: For expenses beginning 1/1/18, the employee’s exclusion and employer’s deduction for employee achievement awards will not apply to cash and so-called “cash equivalents” (gift coupons/certificates, vacations, meals, lodging, tickets to sporting or theater events, securities, and other similar items). However, an employee can still exclude (and an employer can still deduct) the value of other tangible property and gift certificates that allow the recipient to select tangible property from a limited range of items pre-selected by the employer. The prior law annual amounts still apply.
What does this mean? You should review your company policies relating to employee achievement awards. If your company chooses to continue providing cash or cash equivalents, these should be treated as taxable compensation to the employee going forward. Alternatively, you can adjust your company policy to provide only non-cash/cash equivalents achievement awards going forward.
Employer deduction for entertainment, amusement, and recreation provided to employees
Old Law: An employer could fully deduct expenses for recreational, social, or similar activities primarily for the benefit of non-highly compensated employees, provided such activities directly relate to the active conduct of the employer’s business.
New Law: For expenses beginning 1/1/18, this deduction is fully disallowed.
What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.
Employer deduction for meals, food, and beverages provided to employees
Old Law: An employer could fully deduct any food and beverage expense that can be excluded from an employee’s income as a de minimis fringe benefit.
New Law: For expenses beginning 1/1/18, there will be a 50% limitation on the deduction for food and beverages that qualify as a de minimis fringe benefit, including expenses for the operation of an employee cafeteria located on or near the employer’s premises.
What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.
Employer deduction for meals and entertainment provided to customers
Old Law: An employer could deduct 50% of the cost of meals and entertainment expenses paid on behalf of customers provided they were directly related to the active conduct of that trade or business.
New Law: For expenses beginning 1/1/18, all entertainment, amusement, recreation expense, membership dues for business, recreation and social clubs, and related facility expenses are 100% disallowed regardless of whether or not directly related to the active conduct of a trade or business. However, the 50% deduction for food and beverages associated with the active conduct of a trade or business is retained.
What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.
Employer deduction for qualified transportation fringe benefits
Old Law: An employer could deduct the cost of certain transportation fringe benefit provided to employees (i.e., parking, transit passes, and vanpool benefits), even though such benefits are excluded from the employee’s income.
New Law: For expenses beginning 1/1/18, the employer deduction for qualified transportation fringe benefits is fully disallowed. In addition, except as necessary for ensuring the safety of an employee, the employer deduction for providing transportation or any payment or reimbursement for commuting to work is disallowed.
What does this mean? You should segregate these expenses in your accounting system so that they can be appropriately treated under the new law. You should consider your company policy related to these expenses and assess whether prospective changes need to be made.
Disclaimer
The information presented is not intended to be a full and exhaustive explanation of the tax bills referenced as there are many more provisions. Please consult with your tax advisor regarding the policies that might be applicable to your specific situation.
January 10th, 2018|Tax, Tax Cuts and Jobs Act
For more information on the Tax Cuts and Jobs Act’s impact on employee benefits, visit Dean Dorton.