Tax Reform’s Impact on Employee Benefits

H.R.1, the Tax Cuts and Jobs Act, was passed into law on December 22, 2017, restructuring tax brackets and rates and modifying policies, credits and deductions for both individuals and businesses. Following are highlights of some of the changes with respect to employee benefits. Consult your tax advisor to see how tax reform will affect your existing program and tax planning.

  • Healthcare:
    • As of 2019, the revised code essentially eliminates the Affordable Care Act’s individual mandate, which imposed a tax penalty on individuals who failed to maintain appropriate health insurance coverage; however, it does not repeal ACA, leaving the employer mandate in place.
    • For 2018 and 2019, eligible employers may claim a credit for family and medical leave paid to qualifying employees during any period of up to 12 weeks per year. The credit may be equal to at least 12.5 percent and up to 25 percent of wages paid. An eligible employer is one that has a written policy. Note:  Employers cannot claim credit for any PTO, vacation or sick leave that may be used by an employee during an otherwise unpaid FMLA leave.
  • Fringe benefits:
    • Transportation plans: Employers can no longer deduct expenses for qualified transportation and parking fringe benefits.
    • Meals and entertainment expenses: Employer deductions are eliminated. Employee cafeteria expenses are deductible (up to 50 percent) through 2025.
    • Moving expenses: Employees may no longer deduct qualified moving expenses or exclude employer-paid or reimbursed moving expenses, through 2025.
  • Retirement plan loan offsets: Extends the period during which a terminated retirement plan participant may roll over a loan offset from 60 days after severance of employment to the participant’s federal income tax return filing date for the year the loan default occurs.