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New Tax Law Includes Changes for Employee Benefits

Published on March 20th, 2018 by Triton Benefits & HR Solutions

Just before the start of the new year, President Donald Trump signed the Tax Cuts and Jobs Act (TCJA), making the legislation effective for 2018. TCJA includes numerous shifts to the ways in which income is taxed, and also has considerable impacts on employee benefits.

For many workers, benefits are critical. They can make or break a decision to work at one company or another, and make it possible for staff members to support a better quality of life.

The emerging changes as resulting from TCJA will affect employees across an array of industry sectors, and while some adjustments bring advantages and perks, it's not all good news for American workers.

Let's take a closer look at TCJA, and how it will impact the benefits and perks that employees have often come to expect.

Paid family leave 

One of the biggest changes within the new tax law offers advantages for both employers and the workers they support, and does so during a particularly important time in a person's life. As CNBC contributor Sarah O'Brien explained, TCJA offers incentives in the form of tax credits to companies that provide paid short-term leave for employees dealing with family or medical needs.

"25 percent of businesses are adding or plan to add a new paid family leave program."

While the Family and Medical Leave Act requires that companies provide up to 12 weeks of leave for employees, the law does not demand that businesses pay their workers during this time – just that short-term leave is made available. The new tax law could help more businesses ensure their staff members financial stability during a medical or family leave.

"We could see employers moving in the direction of offering some pay during those family leaves as a result of the tax change," Karen Frost, Alight vice president of health strategy, told O'Brien.

According to statistics from Willis Towers Watson 2018 Tax Law Pulse Survey, which included 333 midsize to large U.S. employer respondents, 25 percent of businesses are adding or plan to add a new paid family leave program thanks to these incentives. 

Commuter reimbursement programs

Commuter benefit programs have become increasingly popular, particularly in urban areas where workers rely on public transportation or bicycles to get to work. The new tax law impacts these programs, and employers may feel effects. As Mondaq noted, businesses can no longer deduct expenses related to transportation fringe benefit initiatives.

In this way, while employees can still use pretax dollars to pay for their transportation needs, and businesses can contribute as well if they so choose. However, employers will not receive a deduction for their contribution.

In addition, the previously tax-free $20 limit for bicyclists is now considered taxable, and is not awarded to employees in the same pretax way that other transportation funds are.

"As with eliminating the business deduction for other commuting contributions, it may remove the incentive for employers to help out with bicyclists' costs of getting to work," O'Brien wrote.

Moving expense reimbursements

Another crucial tax law shift impacts the moving expense benefits that many organizations offer for employees that change location in order to accept employment. According to Pillsbury Law, businesses can no longer deduct these moving expense reimbursements. In addition, while these reimbursements were formerly excluded, they are now included in employees' gross income.

This change does have an exception, however, when it comes to active duty service members: Those who change location according to a military order will have moving expense reimbursements excluded from their gross income. Branches of the armed forces can also cite these amounts as deductions.

Fringe benefits

Besides moving expense and transportation benefit programs, TCJA also affects other fringe perk initiatives, such as onsite gyms and meals provided by employers. As the Society for Human Resources Management explained, the Act repeals employer deductions for fitness facilities, instead viewing the funds to support onsite gyms as "unrelated business taxable income." Employees are still able to exclude any related spending from their income.

The Act also eliminates deductions for employee meals, but employees can still exclude this benefit form their taxable income.

401(k) loan repayment 

In a beneficial move for employees who have rolled over or borrowed from their 401(k) accounts, the new tax law changes provide more time for individuals to pay back loans. As O'Brien explained, workers that borrowed from their 401(k)s in the past had a short window to repay the balance, and if that individual left their position and could not repay within the stated time period, the owed amount would be deducted from the balance of the account.

What's more, rolling over a 401(k) in the past also meant being taxed on the balance of any loans unless the borrowed amount could be shored up within 60 days of the rollover. Under these rules, the balance was treated as taxable, and also came with a 10 percent penalty for early withdrawal.

The new Act extends the repayment window, providing a bit more financial stability for those who have had to borrow against their 401(k)s. Employees now have until the tax due date of the following year to repay and avoid having the loan balance become taxable.

Person taping up cardboard box. The new tax laws will impact benefits including moving expense reimbursements and pre-tax transportation programs. 

Awards and extras

Another change better defines exclusions related to gifts, awards and other extras. Now, a cash gift or something equivalent – like a gift card, airline tickets, lodging or other similar expenses – are considered taxable. Awards that are tangible property, such as a water bottle or sweatshirt, are not considered taxable.

Assistance navigating the new tax laws

Under the new TCJA, employers and their employees will see numerous changes. It's important that businesses work to ensure their compliance with the new laws, and have the most visibility and oversight into their benefits programs.

To find out more about awarding benefits under the new tax laws, connect with the experts at Triton Benefits and HR Solutions today.

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