Federal tax reform and its impact on employee benefits

Allison Jacobsen, BridgeTower Media Newswires

With some provisions of the new, far-reaching Tax Cuts and Jobs Act already taking effect Jan. 1, many people may still be wondering how and when tax reform will affect their businesses. The bill, which was signed into law in late December, impacts employee benefits in a number of ways and may very well affect what employers choose to offer their employees going forward. The following topics are some of the tax reform provisions that employers will want to consider when designing employee benefits plans this year and in the years to come.

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Commuting expenses

It is not uncommon for employers to help employees pay for transit passes, parking or some other type of transportation-related expenses. These benefits have been popular with not only employees, but also employers, given that these expenses have been tax-deductible under the tax code. However, with the passage of tax reform, effective Jan. 1, employers will no longer see transportation expenses as tax deductible. While employers may no longer enjoy the deductions of commuting expenses, they may still cover these benefits for employees. One option is to pay employees the cost of their transit pass or parking expenses in the form of wages and then allow them to pay directly for those expenses, pre-tax, through a transportation plan.

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Affordable Care Act

A common question on many employers' minds after the new bill passed is whether tax reform affects, or even effectively repeals, the Affordable Care Act (ACA). Because tax reform does in fact repeal the individual mandate of the ACA starting in 2019, this is certainly a legitimate question. That being said, tax reform does not repeal any other component of the ACA. This means that only the portion of the ACA requiring individuals to pay a tax if they do not maintain health coverage is affected. Essentially, employers with 50 or more full-time equivalent employees will still be required to offer health coverage, or else risk penalty exposure under the ACA's employer mandate. Also keep in mind that all of the ACA's reporting requirements are still intact, so be sure to make all the necessary preparations for reporting as in previous years.

Moving expenses

Another important change contained in the new bill is the treatment of moving expenses, both for employers and employees. Previously, employers who had their employees relocate to another worksite or hired employees from out of state could deduct those moving expenses, and the employees would not count moving expense reimbursements as taxable income. Taxpayers could also deduct the reasonable costs of moving household goods and related traveling costs for which they were not otherwise reimbursed by their employers. However, starting in 2018 and continuing until 2025, employers can no longer make deductions for employee-related moving expenses, and most employees can no longer exclude qualifying reimbursements from gross income. (The only exception is for taxpayers who are members of the military on active duty.) With this new change in place, it may be a good idea for affected employers to review their policies or materials so that employees are aware of the new tax implications of moving and relocation expenses that are paid for and reimbursed by the company.

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Fringe benefits

Also, changes were made to deductions for other fringe benefits offered to employees. There are now stricter limits with employee-achievement award deductions for employers, and the partial deduction for some work-related entertainment has been eliminated. Additionally, deductions of certain meal expenses at a 100 percent level will no longer be available starting in the 2018 tax year, although 50 percent remains deductible.

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Retirement plans

Although there are a lot of changes for employee benefits in the new tax bill, retirement plans like 401(k) plans are largely unaffected. That being said, tax reform does make a few small adjustments, such as how outstanding loans on a retirement plan should be treated and paid when an employee severs employment with a company. It is a good idea to make sure loan-related documents reflect these changes.

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Allison Jacobsen is an attorney with Barran Liebman LLP. She advises employers in all aspects of employee benefits. Contact her at 503-276-2197 or ajacobsen@barran.com.

Published: Mon, Feb 26, 2018

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