The massive tax overhaul recently enacted by Congress includes provisions that affect a variety of fringe benefits, along with other aspects of employee benefits and compensation.
Transportation subsidies, moving expenses, and employee achievement awards are among the fringe benefits targeted by the Tax Cuts and Jobs Act (H.R. 1), signed December 22 by President Trump. However, the final version did not include provisions in the original House-passed bill that would have curtailed dependent care, adoption assistance, and tuition reimbursement benefits.
Beginning in 2018, employers may no longer deduct the cost of qualified transportation fringe benefits (QTFBs). However, employers may continue to offer employees QTFB programs so they can pay transit or parking expenses up to a set amount on a pretax basis. The one exception is bicycle commuter benefits, which were suspended altogether from 2018 through 2025.
Excludable benefits for moving expense reimbursement also were suspended through 2025, except for active-duty military personnel who are ordered to a new location.
The employer deduction for tangible personal property given as employee achievement awards was modified to add a definition of “tangible personal property.” The term now expressly excludes cash, cash equivalents, gift cards or certificates, vacations, meals, lodging, event tickets, and securities.
Entertainment expenses are no longer deductible under Section 274(n) of the Internal Revenue Code. Employers still may deduct 50 percent of the cost of food and beverages provided to employees on business travel. However, onsite eating facilities, which previously have been entirely deductible as “de minimis” fringe benefits, will now be subject to the 50-percent limit and, after 2025, will no longer be deductible at all.
ACA Individual Mandate
As has been widely reported, the tax bill repeals the Affordable Care Act’s (ACA) individual mandate. Specifically, beginning in 2019, the “shared responsibility payment” for individuals not maintaining minimum essential coverage will be reduced to zero. However, the employer mandate is not affected.
Family Leave Credit
The legislation creates a tax credit of 12.5 to 25 percent for wages paid to qualifying employees on family or medical leave. To qualify, an employer must offer at least 2 weeks of annual paid family and medical leave to full-time employees—paid at at least half the amount of regular wages—and a proportionate amount to part-time employees.
A qualifying employee is one who has been at the employer for one year or more and is paid no more than 60 percent of the “highly compensated employee” threshold ($120,000 in 2018).