Employee Benefit Provisions Impacted in the Tax Cut and Jobs Act (TCJA)

The recently enacted tax law included a variety of employee benefits. Below are some highlights to be aware of in the coming years:

• Individual Mandate Tax Penalty Elimination (Effective 2019): The new law reduces the individual mandate penalty to zero rather than fully repeal the law, however this will have the same practical result as a repeal. For 2017, the IRS is requiring that individuals check the appropriate boxes to state that they have coverage, or returns will be rejected. The individual mandate remains in effect for 2018 before its permanent repeal in 2019. This repeal should result in a change to the §6055 ACA reporting rules for self-insured plans (generally Part III of the Form 1095-C). Those reporting requirements are primarily for individual mandate compliance purposes. As a result, employers with self-insured plans will likely have a reduced ACA reporting burden for the 2019 calendar year. Note that the ACA’s employer mandate rules have not been repealed and remain in full effect. Employers have just recently begun to receive the first penalty notices as discussed in here.

• Medical Expense Deduction on Individual Returns (Effective 2017). Medical expenses in excess of 7.5% of AGI continue to be an itemized deduction through 2018. After 2018, the deduction is repealed. Under the new law, the 7.5% of AGI threshold applies for both regular and AMT purposes, regardless of whether the taxpayer is age 65 or older.

• Expenses Attributable to the Trade or Business of Being and Employee (Effective 2018). The law suspended all miscellaneous itemized deductions that are subject to the 2 percent floor under current law, including expenses attributable to expenses related to employment paid by employees. This provision sunsets in 2025. For employees whose employers include reimbursements in taxable income for items such as travel and clothing expenses will no longer be able to deduct their incurred expenses to offset the taxable income. Employers may want to consider adopting accountable plans to avoid taxation of business related expenses.

• Qualified Transportation Benefits and Tax-Free Bicycle Reimbursement Elimination (Effective 2018): The $20 tax-free employer reimbursement provision for certain bicycle commuting expenses is eliminated in the TCJA. The repeal sunsets at the end of 2025. Additionally, the law repeals the employer deduction for qualified mass transit and parking benefits, except as necessary to ensure the safety of an employee. However, employees may continue to purchase mass-transit and parking benefits with pre-tax funds if employers continue to offer this program.

• Tax-Free Moving Expense Reimbursement Elimination (Effective 2018): The TCJA eliminates employer-provided tax-free moving expense reimbursement as of 2018. The provision sunsets at the end of 2025.

• Employer Deductions Eliminated or Reduced for Entertainment (Effective 2018): Employers are no longer permitted to deduct certain entertainment expenses such as membership dues for a club organized for business, pleasure, recreation or other social purposes or a facility used in connection with the above. The deduction for tax-free on-site meals provided at convenience of the employer is also reduced to 50% (eliminated entirely as of 2026).

• Tax-Free Employee Achievement Award Modifications (Effective 2018): Cash and cash equivalents (e.g. gift cards) will no longer qualify for tax-free treatment for employee achievement awards meeting certain conditions (generally up to $400 in value).

• Re-characterization of Certain IRA and Roth IRA Contributions (Effective 2018): Eliminated provision for taxpayers to re-characterize a contribution to a traditional IRA as a contribution to Roth IRA, or vice versa and repeals the ability for taxpayers to re-characterize a conversion of a traditional IRA to a Roth IRA.

• 401(k) Loan Repayment Period Extension (Effective 2018): This provision extends the loan repayment window upon termination of employment from the current 60-day window to a much longer deadline that extends until the individual tax filing deadline.