By now, we have all heard that the Tax Cuts and Jobs Act of 2017 was passed into law on Dec. 22, 2017. The tax impacts of this new legislation are substantial and impactful for businesses and individuals. Many of the new laws are effective for the tax years beginning on or after Jan. 1, 2018, and are set to expire on Dec. 31, 2025. These substantial changes in tax law will require a thorough review of current company practices.
One substantial change to a company's practices needs to be the treatment of an employee's moving expenses. In previous law, an employee could be reimbursed tax-free for qualified moving expenses, if the employee and employer met certain conditions. For tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, the exclusion of taxable income paid by the employer to the employee for qualified moving expense reimbursement is suspended, except for members of the armed forces on active duty. Also, the employee's opportunity to deduct qualified moving expenses is suspended for the same time period.
Another substantial adjustment to businesses" practices is the alteration of the employer's deductibility of some business transportation fringe benefit expenses. Under prior tax law, many employers would reimburse employees for certain transportation fringe benefits, including parking expenses and transit passes. Those payments to employees would then be deducted by the employer in calculating the business's taxable income. The new tax law eliminates the ability for the employer to deduct these reimbursements but continues to allow the employees to receive these transportation fringe benefits without having to include the amounts in an employee's gross income and wages.
A third impact to employees resulting from the TCJA was the employee's personal deductibility of unreimbursed business expenses. For some individual taxpayers, qualified unreimbursed business expenses comprised a substantial personal tax deduction. The new tax legislation effective Jan. 1, 2018, suspended this personal tax deduction. An employer's review of these expenses may help minimize the impact of that tax change to their employees. Since that personal tax deduction is suspended through Dec. 31, 2025, an opportunity may exist to potentially lower an employee's salary, but then reimburse the previously unreimbursed expenses to the employee. The tax impact to the employer would be the same but may prove more advantageous to the employee since they would be receiving tax-free reimbursements for business expenses.
Several years ago, the Affordable Care Act established both employer and employee penalties for not providing and maintaining minimum health care coverage. The TCJA of 2017 eliminates the employee's (not employers) tax penalty for not maintaining the minimum health care coverage. What does this mean for employers? If the employee's minimum health care coverage penalties are eliminated, there may be a trend for younger, healthier employees to not carry health insurance. If these individuals are not included when insurance companies assess the employer's health insurance premiums, an increase in health care costs could be on the rise.
With sweeping tax legislative changes stemming from the Tax Cuts and Jobs Act of 2017, a trusted advisor is more necessary that ever in today's business climate. There are many more tax provisions included in the new legislation that can impact both employers and their employees. As CPAs, we can evaluate an employer's business practices and tailor those to minimize the tax impact on employee benefits.
