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May 2018  Volume 16, Number 5        
 

health benefits

How Could the New Tax Law Affect Your Company’s Benefits?

The Tax Cuts and Jobs Act will have a big effect on the way the government taxes employer-sponsored benefit programs. Some of the changes will make it easier for you to offer benefits, while others will make it harder.

President Donald Trump signed the act into law Dec. 22, 2017. It is officially called “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018.” The law is the most sweeping reform of the U.S. tax code in more than 30 years, lowering most business and individual tax rates and modernizing U.S. international tax rules. Most of the provisions were effective Jan. 1, 2018, but some are not permanent and are scheduled to sunset after Dec. 31, 2025, unless a future Congress extends those provisions.

Here’s an overview of some changes that will affect your or your employees’ taxes on fringe benefits.

Transportation Benefit Programs

Then: Employees used pretax dollars to pay for transportation or parking expenses, and employers deducted the costs.

Now: Employees still can use pretax dollars to pay for transit expenses, but employers can no longer get a deduction. The exception is if the benefit is necessary to ensure the safety of the employee. In that situation, the employer can deduct the cost. The law’s implementation is complicated because local laws in New York City, Washington, DC, and the San Francisco Bay area require certain employers to maintain qualified transportation fringe benefit programs.

In 2018, employees can set aside up to $260 per month pretax for transportation and parking expenses if their employer maintains a transportation benefit program. The exclusion for biking expenses stays at $20 per month.

The rules are different for employees who bike to work. In the past, they could receive $20 monthly from their employer to defray the costs of cycling and the benefit was tax-free. That benefit is no longer tax-free.

Employee Achievement Awards

Then: Employers could give employees tax-free “tangible awards” for achievement, such as the traditional gold watch.

Now: Employees can still exclude and employers can still deduct the value of tangible property and gift certificates but only when offered from a limited range of items pre-selected by the employer. Otherwise employee exclusions and employer deductions from taxation will no longer apply to cash or any other gift coupons/certificates, vacations, meals, lodging, tickets to sporting or theater events, securities, or “other similar items.”

Family and Medical Leave Tax Credit

Then: The Family and Medical Leave Act guaranteed that employees at large companies received up to 12 weeks of leave each year, although employers were not required to pay workers during the leave.

Now: The act is still in effect, but the new tax law provides employers an incentive to pay for some or all of the leave. Employers that provide paid family and medical leave to their employees can claim a business tax credit for a portion of the wages paid during qualified leave. The paid leave must be an official benefit program offered by the company to all eligible full-time employees. Full-time employees must be allowed to take at least two weeks of annual paid family and medical leave if necessary, and part-time employees must be provided a commensurate amount of leave on a pro rata basis. Employers that pay at least 50 percent of an employee’s wages can claim a 12.5 percent credit of the wages paid for up to 12 weeks of family and medical leave per year. The employer’s credit is increased by 0.25 percentage points, up to a maximum of 25 percent, for every percentage point when the rate of payment exceeds 50 percent.

Moving Expenses

Then: Employees whose job relocation moving expenses were reimbursed by their new employer or their current employer did not have to pay taxes on the amount.

Now: Employees must pay taxes on the reimbursement and they cannot deduct moving expenses that were not paid by their employer. This rule does not apply to active-duty military personnel.

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In this issue:

This Just In ... Family HSA Contribution Limits Lowered

How Could the New Tax Law Affect Your Company’s Benefits?

Insurance Terms 101: It Pays to Know Who Does What

Reference-Based Pricing — A New Way of Paying Health Care Providers

Congress Looking at Retirement Savings Plans

 

 


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