While the primary goal of the Tax Cuts and Jobs Act (HR 1) is to lower the corporate tax rate and tax obligations for many Americans, there are several provisions that will have an impact on employer-sponsored health and fringe benefits. Here is a quick rundown.
- Individual mandate penalty goes away in 2019. The penalty for individuals lacking health coverage is reduced to $0 starting in 2019. This means employers sponsoring self-funded health plans are still required to send 1095s to employees at the end of January 2018 for the 2017 calendar year and will need to report for the 2018 calendar year in early 2019. The employer mandate and ACA reporting requirements are also still required. The elimination of the individual mandate penalty has potential negative implications for the individual insurance market and the cost of healthcare, but we’ll hold that discussion for a later post.
- Employer business deductions for qualified transportation benefits end January 1, 2018. Benefits provided for qualified parking, mass transit and van pools continue to be excluded from employee income, but employers can no longer deduct these benefits from their corporate taxes starting January 1. It appears that even employee pre-tax contributions to qualified transportation plans are no longer deductible by the employer. It’s not clear whether the employer deduction ends for programs paying for or reimbursing commuting expenses from plans that aren’t qualified and offer commuting benefits on an after-tax basis. The January 1 effective date does not leave much time for employers to decide whether or how to modify their transportation programs given that most employees have already made their elections for this benefit for 2018. Keep in mind that you must continue to comply with local laws regarding commuter benefits; for example, in New York City and San Francisco.
- Exclusion of qualified bicycle commuting benefits from employee income is suspended for 2018-2025. Some employers offer their employees benefits for qualified bicycling commuting expenses – which has permitted an excludable benefit of up to $20 per month. This tax-favored exclusion ends between 2018 and 2025. If employers continue to offer the benefit to employees on an after-tax basis, they can still deduct it through 2025.
- Suspension of employee tax exclusion for qualified moving expenses paid or reimbursed by an employer for 2018-2025. The exclusion will be retained for active duty armed forces who move due to military orders.
What’s NOT changing in the tax code that had been under consideration: The ACA’s 40% excise tax on “high cost” employer-provided health coverage is not addressed in the tax bill, nor has any change been made to the exclusion from employee income of employer-provided health coverage. The tax-favored status of adoption assistance, dependent care assistance, educational expense, employer child-care tax credit and employer deduction for on-site gyms and fitness facilities for the benefit of employees are also not changed in the final version of the bill.
Next steps: You will want to consult with your tax advisor and make appropriate payroll changes for all benefit tax status changes effective January 1, 2018. From a communication perspective, in addition to notifying employees, you will need to make revisions to benefit communication materials, plan documents, on-line resources, and other collateral that reference the impacted benefits.