In late December last year, the new tax bill, formerly titled "The Tax Cuts and Jobs Act," was signed into effect. The 500+ page bill will have far-reaching impact across multiple industries. Particular focus has been placed on how the bill modifies employee benefits, including the Affordable Care Act. With that in mind, here are three key ways the bill will affect employee benefits in 2018.
1) The Individual Mandate
Many supporters of the bill are heralding its passage as a repeal of the Affordable Care Act. This isn’t entirely true. In fact, it doesn’t even completely repeal the Individual Mandate. Instead, it eliminates the penalty for noncompliance with the Individual Mandate, removing the "stick" from the carrot-and-stick approach. This is much more easily reversible than a complete repeal, and we may see it revisited following this year's mid-term elections.
Since most employers are on a calendar-year benefits cycle, the penalty will not directly impact CY2018. However, for those employees electing benefits or changing jobs in early 2018, the tax consequences of this bill will be fresh on their minds. In addition, opponents of the bill are projecting premium increases of up to $2,000 for older Americans by 2019, possibly discouraging employees from electing coverage.
2) Voluntary and Fringe Benefits
The tax bill touches many of the voluntary benefits and perks employers may provide. Employers should review and consider how these changes impact their benefit offerings.
The bill provides for a new credit to employers providing annual paid family and medical leave for 2018 and 2019. Vacation, personal or other medical or sick leave that does not fall within the definition of the FMLA leave will not count toward the credit. Be on the lookout for IRS guidance regarding this change.
In addition, many fringe benefits that were either deductible by employers or excluded from employees' incomes have been modified. Effective January 2018, employers will no longer be able to deduct transportation fringe benefits, including parking, public transportation, and pooling arrangements. Bicycle reimbursements will now be 100% taxable for employees. Employers who provide on-premise meals for employee convenience will no longer be able to deduct such expenses.
Also, the tax credit for employer-provided childcare will be repealed. In prior years, an employer may have claimed a tax credit equal to 25% of any child care services for employees and 10% of expenses for resource and referral services, up to $150,000 per year. Starting in 2018, this tax credit will no longer be available.
Any employee recognition awards, regardless of purpose, now must be included in employee’s taxable income. In the past, certain employee recognition awards, such as bonuses for years of service or safety, were not included in employees' taxable income. Employers should seek alternative methods of expressing appreciation to avoid handing employees an unwelcome tax burden as thanks for their service.
3) Moving and Entertainment Expenses
The bill suspends the individual deduction for qualified moving expenses for work-related moving expenses through 2025, except for active members of the United States Armed Forces.
In addition, employers may no longer deduct business-related entertainment, amusement and recreational activities, and membership dues related to such purposes. For employers with tipped employees, the bill limits the employer FICA credit to any amounts above the current federal minimum wage.
Employers should evaluate the overall impacts of the tax bill on a comprehensive basis, and then determine potential changes to their employee benefit offerings. While the bill has been signed, the IRS must still issue guidance and decide how to enforce the new credits and penalties that have been introduced. Avoid the temptation to make any major changes to your benefits before conducting a thorough evaluation. Subscribe to be the first to know when new legislation guidance is introduced.
As the Chief Financial Officer, Rick Bakewell oversees all financial aspects of benefitexpress, including: finance, accounting, treasury, and legal. With over 25 years of experience in progressive finance leadership roles in technology and services industries, he has a proven track record of building scalable finance environments, driving operational efficiency improvements, leading financing and capital raising initiatives, and successfully completing mergers and acquisitions. Prior to joining benefitexpress, Rick held CFO roles at high-growth IT consulting firms - Fruition Partners (2014-2016) and The Revere Group/NTT Data (2001-2014). He is a Certified Public Accountant and received his Bachelor of Science in accounting from Illinois Wesleyan University.