How the New Tax Law Affects Fringe Benefits
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA), which eliminated tax breaks for several fringe benefits for both the employer and the employee in various ways. This law went into effect on January 1, 2018 and employers had little time to revise their fringe benefit offerings.
Changes in the law affected benefits such as moving expenses, commuter expenses and offers a tax credit for those employers who offer paid family leave (not including state mandated laws).
Qualified Moving Expenses – Before January 1, employers could pay or reimburse an employee’s eligible moving expenses, related to starting new employment, on a tax-free basis. The TCJA suspended this income exclusion through 2025. This means that employers who reimburse or pay for their employee’s moving expenses must include this in the taxable income to their employees. The employee deduction for moving expenses on their personal income tax is also suspended. The one exception to this new rule is in the case of a member of the US Armed Forces on active duty who moves pursuant to a military order.
Qualified Transportation Benefits – Before January 1, Section 132 of the Internal Revenue Code, allowed employers to provide certain transportation benefits (such as parking and mass transit) on a nontaxable basis. These benefits paid either by the employee or employer is excluded from gross income. The TCJA eliminated the employer deduction (keeping the employee income exclusion in place). The Act did however eliminate the bicycle commuting reimbursement for both employee and employer.
Employer Credit for Paid Family and Medical Leave – for tax years of 2018 and 2019, employers that offer paid family and medical leave (as defined under FMLA laws), may qualify for a newly established tax credit of up to 25% of the annual wages paid to those employees. Paid leave that is provided as vacation, personal or sick leave, or required under state or local laws are not taken into consideration for this tax credit.
The tax withholding tables are also affected under this law, and the IRS has released its newest version of the tax withholding calculator and Q&As for the tax payer.
For more information on the IRS tax withholding tables – Click Here
For more information on the Tax Cuts and Jobs Act (TCJA) – Click Here