United States: The Impact Of The Tax Cuts And Jobs Act On Employee And Fringe Benefits

Last Updated: January 5 2018
Article by Alden J. Bianchi

The Tax Cuts and Jobs Act makes some notable, though targeted, changes to the employee benefits landscape. We summarize some of the more significant changes in the Question and Answers set out below.

How will the Act's repeal of the Affordable Care Act individual mandate affect employers?

Commencing in 2019, the Act eliminates the tax penalty under the Affordable Care Act's individual mandate—i.e., the ACA provision that require U.S. citizens and green card holders to have "minimum creditable coverage". The effect of this change is to repeal the ACA's individual mandate. Importantly, however, the employer shared responsibility rules remain in place, which means that employers must still offer coverage or face the prospect of an excise penalty. Employers will continue to be required to prepare, distribute and file Forms 1094-C and 1095-C.

There is a secondary impact of the repeal of the individual mandate on employers: since employers will need to offer coverage, but employees will not be required to have coverage, younger and healthier employees can be expected to exit the risk pool. This could make employer plans more expensive to maintain.

What changes does the Act make to Qualified Transportation Benefits and Qualified Bicycle Commuting Reimbursements?

Prior law provided an exclusion from gross income for qualified transportation fringe benefits, which are defined (in Code section 132(f)(1)) to include "transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee's residence and place of employment," transit passes, qualified parking expenses and "qualified bicycle commuting reimbursement" costs. Nor was any amount included in an employee's gross income because he or she had a choice among qualified transportation fringes (other than a qualified bicycle commuting reimbursement).

Beginning in 2018, the Act repeals the prior law employer deduction for qualified mass transit and parking benefits, except as necessary for ensuring the safety of an employee. The Act also repeals the exclusion from gross income and wages for qualified bicycle commuting reimbursements, effective for tax years beginning after December 31, 2017, and before January 1, 2026. During this period, employer reimbursements for bicycle commuting expenses will be subject to income tax but not wage withholding.

Congress eliminated the employer deduction for mass transit and parking benefits by amending Code section 274. No change was made to Code section 132. As a result, the Act does not affect the ability of employees to deduct mass-transit and parking benefits, which employees can continue to purchase with elective deferrals of salary. This treatment does not extend to qualified bicycling commuter reimbursements, since these benefits cannot be purchased with salary reduction contributions. Presumably Congress thought that the loss of the employer deduction would be offset by lower marginal tax rates on corporations.

Does the Act do anything to help victims of natural disasters?

It does. Distributions from IRAs and qualified plans and tax-sheltered annuity arrangements, among others (collectively referred to as "eligible retirement plans") are generally taxed in the year in which they are distributed. Distributions received before age 59½ are subject to an additional 10% "early withdrawal penalty." The tax on distribution can be further deferred if the distribution is rolled over to another eligible retirement plan within 60 days.

The Act provides relief from the early withdrawal penalty for up to $100,000 of "qualified 2016 disaster distributions," which the Act defines as distributions from an eligible retirement plan made on or after January 1, 2016, and before January 1, 2018, to an individual whose principal place of abode at any time during calendar year 2016 was located in a 2016 disaster area and who has sustained an economic loss by reason of the events that gave rise to the Presidential disaster declaration. Rather than being taxed currently, qualified 2016 disaster distributions are taxed ratably over three years, and the amount of the distribution can be recontributed to an eligible retirement plan within three years. The Act allows plans to be amended retroactively to take advantage of these rules. This provision of the Act—in particular the relief from early withdrawal penalties—will be particularly welcome news to affected employers and employees.

How does the Act change the rules governing plan loans from a qualified retirement plan (e.g., a 401(k) plan)?

Before the Act, an employee who terminated employment with an outstanding plan loan could avoid having the outstanding load balance taxed to him or her if he or she rolled over the amount of the loan to an IRA or eligible retirement plan within 60 days. The Act enlarges this time period to the due date for filing the employee's tax return for that year (including extensions).

This provision applies to employees whose plans terminate or who separate from service while having a plan loan outstanding after December 31, 2017. While this change may not affect a large number of employees, it is nevertheless welcome relief.

Does the Act affect the deduction for meals and entertainment, and if so how?

Yes. The Act repeals most of the rules governing deductions for entertainment, amusement, or recreation that was directly related to or associated with the active conduct of the taxpayer's trade or business. The new rule applies to amounts incurred or paid after December 31, 2017.

The Act retains the 50 percent deduction for business-related food and beverage expenses, which it expands to include food and beverages provided to employees through an eating facility that meets the requirements for de minimis fringe benefits. These latter rules apply to amounts incurred or paid after December 31, 2017 and before January 1, 2026.

The survival of the 50 percent deduction for meals is welcome by businesses of all sizes. Similarly, employers that already maintain employee eating facilities will welcome the new tax break. The extent to which the newly expanded rules governing eating facilities will cause employers to offer this as a new benefit is less clear.

Did moving expenses survive under the Act?

The tax code has historically provided for the deduction of moving expenses, which the Act reverses, with a limited exception for members of the U.S. Armed Forces on active duty who move pursuant to a military order. The new rules take effect in 2018 and sunset in 2025.

What are some of the provisions that were excluded from the Act, and will therefore not become law at this time?

There are a handful of items that did not make it into the Act and are worthy of note:

  • Employers that sponsor frozen defined benefit plans have long struggled with the application of the tax non-discrimination rules. As these plans continue to operate, they tend to accumulate higher paid, long service employees, making it increasingly difficult to pass non-discrimination testing due, not as a result of benefit accruals, but rather as a consequence of changing plan demographics. The House bill would have granted some relief, by allowing employers greater latitude in meeting these nondiscrimination requirements.
  • The House bill would have allowed employees to take hardship distributions from a 401(k) that included account earnings and employer contributions, rather than just employee contributions.
  • Similarly, the House bill would have required the IRS to amend its regulations that bar an employee from making elective deferrals to a 401(k) plan for six months after receiving a hardship distribution

These provisions, among others, were eliminated in the Conference Committee.

Takeaways

Typically, when Congress or a regulatory agency changes the rules governing employee benefits, employers are provided some time to react. For example, tax-qualified retirement plans (including 401(k) plans) have available to them a generous "remedial amendment period" that in the case of the changes made by the Act give them ample time to make the necessary amendments. This is not the case, however, in the case of qualified transportation fringe benefits, with respect to which the changes take effect on January 1. The issue is particularly urgent for employers in some jurisdictions that require employers to offer transportation fringe benefits.


For more coverage of the new tax bill's impact on the workplace click  here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alden J. Bianchi
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions