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6 Pros and Cons on Employee Benefits With Tax Reform

January 31, 2018

Since Congress passed the largest tax reform legislation in 30 years, employers and employees are starting to realize the many ways the Act might affect them.

The big news is that the corporate tax rate is being reduced from 35 to 21 percent. This reduction already has some companies offering higher wages and bonuses to offset any potential downfall to their employees.

As the labor market becomes more competitive, savvy employers are finding ways to minimize any negative impact on their employees.

Some key employee benefit changes:

Affordable Care Act

  • Under the ACA, if employees didn’t have health coverage they would be penalized with a tax. Now, employee’s health care decisions are back in their hands and the penalty is zero if they choose not to have coverage.

Pro: Employee Effective 2019

Family Medical Leave Act

  • The Act creates a 12.5 percent tax credit for employers that pay employees who are on FMLA versus them taking leave without pay. The tax credit can be used when someone is a “qualifying employee”, which is defined as someone with compensation not in excess of 60% of the rules for highly compensated employees (HCE). For 2018 that level is $120,000, so the math is $72,000.  If that HCE amount goes up, then the threshold goes up.

Pro: Employee and Employer

401K loan relief

  • It used to be that loans against your retirement accounts were immediately due and payable at the end of employment (unless rolled into another 401k plan with loan provisions), but not anymore. 401K loan repayments will now be extended through the due date of the employee’s income tax return, including extensions.

Pro: Employee

Moving expenses

  • Employers will have to find a new way to get top candidates to move for jobs within their companies. Any monies paid to employees for moving expenses will now be considered taxable income.

Con: Employer and Employee

Commuting

  • Unless it’s a bicycle, employers will no longer be able to deduct the cost of transportation fringe benefits (vanpooling, work-related parking costs, etc.) given to their employees and employees can no longer receive them tax-free. Some employers could stop paying for these benefits, but those who want to remain competitive will continue.

Con: Employer and Employee

 Awards

  • You know that engraved watch some employers gave after 25 years of service? Employers used to get a tax deduction for them, but not anymore. The same goes for cash, coupons, vacations, tickets and “other similar items.” Plaques, however, are still eligible for deduction as are gift cards to specific pre-selected catalogs.

Con: Employer and Employee

Smart employers will find ways to use the changes to their advantage to recruit and retain the best talent. What companies decide to offer in lieu of these benefits could be the difference between retaining current employees or recruiting new ones.

INSIGHT WRITTEN BY:
Jim Mack