The passage of the Tax Cuts and Jobs Act could cause some employers to revisit the employee benefits their company offers. That’s because the bill limits the tax deductions businesses can claim for certain employee benefits. Here’s a breakdown:
Commuting Employee Benefits
Currently, employers who offer transit employee benefit programs can allow employees to use pretax dollars to pay for things like transportation and/or parking expenses. Employers are able to deduct their contributions to these programs. However, the new tax bill lowered the tax-excludable limit for transportation and parking expenses from $510 to $260 per month.
The reduction could cause employers to stop subsidizing their employees’ parking costs, but many employers say the deduction wasn’t their motivation behind offering the benefit in the first place. Employers may also find the decrease in the corporate tax rate could offset any loss of the deduction.
It’s important to note that parking and mass transit employee benefits will continue to be tax exempt to employees who can pay their own costs using pretax income through a payroll deduction.
Paid Leave Credit for Employers
A federal tax credit will now be available for FMLA covered employers who choose to provide paid leave as an employee benefit. To receive the credit, employers will have to provide at least two weeks of paid leave and compensate their workers at a minimum of 50 percent of their regular earnings. The tax credit will range from 12.5 percent to 25 percent of the cost of each hour of paid leave, depending on how much of a worker's regular earnings the benefit replaces. While the credit could be considered an incentive to offer paid leave, it is not a requirement for employers under the 50-employee threshold.
Defined Contribution Retirement Plan
Currently, 401(k) participants who have an outstanding loan must repay it within 60 days of their departure from the company. The tax bill affects employee benefits by extending the deadline to the latest date on which the participant can file his or her tax return for the year of the loan default.
Achievement Awards
An employer’s current deduction for the cost of an employee achievement award is limited to $400 for awards of “tangible personal property.” This includes length-of-service awards and safety awards among others. These types of achievement awards can be excluded from an employee’s taxable gross income.
The new tax law specifies that “tangible personal property” does not include:
- Cash
- Gift cards or certificates
- Vacations
- Meals
- Event tickets
Employers should be sure to identify awards considered taxable fringe benefits and deduct payroll taxes accordingly.
Individual Mandate
The tax bill effectively ends the individual mandate to purchase health coverage beginning in 2019. However, the employer mandate to offer health benefits when considered an "applicable large employer” or pay a penalty remains in effect. Reporting requirements also remain in effect.
At FrankCrum, we can explain which regulations apply to your business and provide the guidance you need to address changes in many areas including health plan requirements, employee benefits, and potential penalties.
