On Wednesday, December 20, 2017, the Senate and House of Representatives passed the Tax Cuts and Jobs Act. On Friday, December 22nd, the Act was signed into law by the President. The final version included the following changes related to health insurance and employee benefits:
Elimination of Employer Income Tax Deduction for Qualified Transportation Fringes
Effective: January 1, 2018
This provision eliminates an employer’s ability to take a business deduction for qualified transportation fringe benefits provided to employees. Qualified transportation includes parking, transit, and van pool expenses incurred by employees for commuting to and from work. Qualified bicycle commuting reimbursement will still be allowed as a business expense deduction until January 1, 2026.
Though employers will no longer be able to take an income tax deduction, employer-paid transportation benefits (other than qualified bicycle commuting reimbursements) will remain tax-free to employees and employees may continue to pay for eligible transportation expenses via pre-tax payroll deductions. Qualified bicycle commuting reimbursements will become taxable income for employees starting January 1, 2018 through December 31, 2025.
Clients that provide transportation benefits should check with their tax advisors to determine the effects of this change to the allowed income tax deductions and exclusions.
Removal of ACA’s Individual Mandate to Maintain Health Coverage
Effective: January 1, 2019
This provision removes the income tax penalty for individuals who do not maintain health coverage. Since this is a tax reform bill, this does not change any of the coverage reporting requirements that are specified under other sections of the ACA.
The employer mandate to offer affordable medical coverage to full-time employees remains in effect, along with the Form 1095 reporting requirements.
Temporary Creation of Employer Credit for Paid Family and Medical Leave
Effective: January 1, 2018 through December 31, 2019
A general business credit will be available to eligible employers with a written policy that specifically establishes a paid family and medical leave benefit (not simply regular vacation, sick, or personal leave) of at least 50% of normal wages for at least 2 weeks. The tax credit will be equal to 12.5% of the wages paid to eligible employees up to a certain income level for up to 12 weeks of the employee’s family and medical leave. The tax credit percent is increased by 0.25 for each percentage point of wages above 50% that the employee receives, up to a 25% maximum credit.
Please contact your Keller account team with questions.