The (Mostly) Negative TCJA Changes to Employee Benefits Tax Breaks

The Tax Cuts and Jobs Act (TCJA) contains several modifications that impact tax breaks for employee benefits. The adjustments include four negatives and one positive; they will affect both the employees and the businesses providing the benefits.

4 breaks curtailed

Beginning with the 2018 tax year, the TCJA reduces or eliminates tax breaks in the following areas:

  1. Transportation benefits. The TCJA does away with business deductions for costs associated with providing qualified employee transportation perks like mass transit passes, van pooling and parking allowances. (The employees will continue to enjoy these benefits tax-free.) Other business deductions now prohibited include the cost of providing commuting transportation to an employee (like providing a car service), except in the case where the transportation is imperative for the employee’s safety. In addition, the TCJA has placed the tax-free benefit for bicycle commuting (up to $20/month) on hold until 2025.
  2. On-premises meals. The TCJA cuts the business deduction for providing specific meals to employees at work down to 50%. This applies to meals provided on company property, either in the on-site cafeteria or when an employee must stay late to work. (The deduction is set to be eliminated in 2025.) These benefits remain tax-free for employees receiving them.
  3. Moving expense reimbursements. Through 2025 the TCJA shelves the exclusion of a business’s reimbursements of employees’ qualified moving expenses from employees’ taxable income. Despite this, businesses will typically be allowed to deduct such reimbursements.
  4. Achievement awards. The TCJA discontinues the business tax deduction and the associated tax exclusion for employee achievement awards presented as cash, gift certificates or gift coupons, sporting or theater tickets, meals, lodging, vacations, securities and “other similar items.” On the other hand, tax breaks remain for gift certificates that allow the recipient to select tangible property from a limited range of items preselected by the employer. The deduction/exclusion limits stay at up to $400 of the value of achievement awards for length of service or safety and $1,600 for awards under a written nondiscriminatory achievement plan.

1 new break

The TCJA devises a tax credit for 2018 and 2019 pertaining to wages paid to qualifying employees on family and medical leave. In order to qualify, a business has to extend annual paid family and medical leave for two weeks minimum — as outlined by the Family and Medical Leave Act (FMLA) — to qualified employees. The paid leave must compensate the employee at 50% normal wages or more. Leave required by state or local law or that was already part of the business’s employee benefits program typically won’t qualify.

The credit equals a minimum of 12.5% of the amount of wages paid during a leave period. For payments beyond 50% of wages paid, the credit is raised incrementally and peaks at 25%. Unfortunately, employers can’t also deduct wages claimed for the credit; (no double-dipping).

More rules, limits and changes

Take into account that many other rules and limits pertain to these breaks. The TCJA also makes adjustments regarding employee benefits. Please call us at 949-860-9902 or click here to contact us for more of the particulars affecting your business.