The sweeping tax reform bill passed by Congress at the end of last year, and its impact on corporate and individual income tax rates, deductions, and exclusions, has received extensive coverage. But beside the repeal of the Obamacare individual mandate, the tax bill also included a wide range of provisions changing the tax treatment of employee benefits for 2018 and beyond. Here’s a brief summary of what’s new and what employers need to keep their plans up to date.
Health Insurance provisions of note include:
- While the individual mandate under the Affordable Care Act was repealed, the employer mandate remains in full effect, including the IRS reporting requirements.
- For 2017 and 2018 tax years, medical expenses are deductible above 7.5% of adjusted gross income (AGI); For 2019 and later, the threshold increases to 10% of AGI.
- Health Reimbursement Arrangements, Health Savings Accounts and Flexible Spending Accounts were not changed by the new tax bill. However, certain benefit limit adjustments will apply for 2018 (there’s more on these and other 2018 contribution and benefit limit amounts below).
Retirement Benefits will see the following changes:
- Rules for public safety volunteer length of service awards are modified.
- Defined contribution plan loan rollovers are extended from the current 60 days to the date the employee’s tax return due date.
- Recharacterizing Roth IRA contributions as a traditional IRA contribution will be prohibited.
- Tax relief from the early withdrawal penalty for areas impacted by certain major disasters.
Fringe Benefits changes will eliminate or significantly reduce employer deductibility for:
- Entertainment expenses
- Food and beverage expenses and employee meals
- Qualified transportation expenses
- Employee achievement awards
- Reimbursement of qualified moving expenses
Federal Tax Credits for Paid Family and Medical Leaves have been revised and extended for 2018 and 2019. The tax credits will sunset after that unless Congress reauthorizes them.
Executive Compensation deductibility has new limitations in place, and the exemption of commissions and performance-based pay has been eliminated. For nonprofit organizations, a 20% excise tax on the compensation of the five highest-paid employees earning over $1 million has been added.
We discuss the employee benefit impact of the new tax reform law in greater detail in our new Briefing.
2018 Benefit Limits
Aside from the tax reform changes, there are many benefit limits that are adjusted on an annual basis. We have also issued a Briefing that outlines the new amounts for benefit programs, reflecting inflation and changes in the law. We encourage employers to review their benefit plans to keep them up to date.
About Amy Donovan
Amy is Keenan's Vice President of Legislative and Regulatory Affairs, authoring the firm's Briefings and position papers on legislation, regulation and litigation that have an impact on the firm and its clients.