Once again, there are more changes coming out of Washington D.C., and we wanted to fill you in on what we know right now.
Here’s a look at some of the key changes employers need to know.
Employers earn a tax credit related to the Family and Medical Leave Act
Starting in the 2018 tax year, certain employers will be eligible receive a tax credit that varies between 12.5 percent and 25 percent of wages they pay qualifying employees while on leave under the Family and Medical Leave Act. The new law contains definitions of “eligible employer” and “eligible employee” that must be met in order for the employer to qualify for the tax credit.
Employers can claim the 12.5 percent tax credit if they continue to pay the employee 50 percent or more of their normal wages (a minimum requirement for this provision) while on FMLA leave. The tax credit increases in increments of .25 percent, up to a maximum of 25 percent, for each percentage point by which the employer pays the employee in excess of 50% of the employee’s normal wages while on FMLA leave.
Individual health insurance mandate is repealed
Starting in 2019, the Tax Cuts and Jobs Act reduces the mandate penalty for individuals to zero, effectively negating this provision of the Affordable Care Act. It is important to note that the ACA employer mandate has not changed, so qualified “large” employers still need to comply with the health coverage standard to avoid any penalties.
Business deductions eliminated for employee commuting and parking benefits
Except when necessary to ensure the safety of an employee, the new law removes the deductions businesses can take when providing qualified mass transit and parking benefits to their employees. Employees can still pay for these expenses using pre-tax dollars. Such benefits are still excludable from income for employees.
Employee achievement awards
The tax-free benefit that applies to employee achievement awards has been a popular way to reward employee performance. In order to be deductible, the award must be a transfer of “tangible personal property.” The new law changes the definition of what counts as “tangible personal property” entitling a company to deduct for such an award.
The new definition expressly excludes cash, cash equivalents, gift cards (other than arrangements conferring only the right to select from a limited array of items preselected or preapproved by the employer), vacations, meals, lodging and many other items.
Relocation expense deductions
The tax overhaul suspends the tax exclusion and the deduction related to moving expenses for taxable years 2018 through 2025. Moving expenses can no longer be deducted regardless of whether the employer or employee covers the costs.
A repeal of some meal deductions
Under prior law, an employer could deduct 50% of the cost of business meals and entertainment and 100% of meals provided to employees through an on-site cafeteria or meals provided for the convenience of the employer. The new law eliminates entirely the deduction for entertainment expenses and imposes a 50% limit on the deduction for meals provided through an in-house cafeteria or for the convenience of the employer. After 2025, the deduction for these expenses will no longer be available. The current rule allowing a 50% deduction for business meals and 100% deduction for expenses for recreational, social or similar activities primarily to benefit employees (except highly compensated employees) is not changed under the new law.
Proposed changes that did not make the final law
It is also essential to know what does not change under the new law. For example, Congress ultimately did not alter employer-provided tuition assistance, the pre-tax status of dependent-care flexible spending accounts, or the minimum age for defined benefit pensions.
In addition, although lawmakers made no major alterations to defined-contribution retirement plans, they did allow some extra time for repayment of hardship distributions in certain cases.
The final version of the tax law also made no changes to the tax exclusion for adoption assistance. The tax credit for employee child-care facilities remains, as well.
Information on withholding is forthcoming
Numerous payroll changes are expected under the new tax law, although they are not all clear yet. For example, the Internal Revenue Service was scheduled to issue guidance on income tax withholding this month. Once the updated withholding tables are released, the IRS will allow a transition and testing period for employers during which they can still use the old withholding tables.
As always, employers and business owners of all sizes should carefully watch as legislation develops and ensure they remain in compliance with the law.
The NARFA Team continues to provide strength and stability for our members. Please contact us to learn more about our new programs for 2018, and how there’s never been a better time to enjoy NARFA “power in numbers.”