Tax Reform Implications for 2018 Benefits

The good news about the initial proposal for comprehensive tax reform legislation released by House Republican leaders last week is that it did not include a cap on the tax exclusion for employer-sponsored health insurance. But the bill would repeal an array of benefits as a way to pay for lower individual and corporate tax rates. If passed, these changes would generally take effect in 2018. Benefits in jeopardy of losing or limiting their tax-favored status include:

  • Qualified transportation programs
  • Employers’ educational assistance programs
  • Employer-provided adoption assistance
  • Employer perks such as fitness facilities/memberships, meals, entertainment, and achievement awards
  • Employer-reimbursed qualifying moving expenses and employer-provided housing 
  • Employee and employer contributions to Archer MSAs
  • Dependent care assistance programs--including elimination of dependent care flexible spending accounts (2023 effective date)

Whether and when Congress can agree to a final tax bill and whether these or similar provisions might be included in that bill are far from certain. But given the potential disruption these changes could create for employers and employees, you’ll want to spend some time proactively thinking through the implications. Follow these five steps to ready yourself for quick action should the tax legislation become law:

  1. Develop a running scorecard so you can track which benefits are in, or struck from, the various proposals and monitor the effective dates of these changes
  2. Prepare an action plan that will allow you to make last-minute changes to 2018 benefits should tax-reform pass before January 1
  3. Determine how the change to the tax status of certain fringe benefits will impact recruitment, retention, and employee relations, and plan your response (e.g. elimination of some benefits, communications campaign, increases to the cash compensation budget)
  4. Alert your financial leaders to the possible changes and collaborate regarding the future financial impact, including the possibility of additional cash compensation and increased payroll
  5. Discuss potential impact of tax law change with vendors and understand any applicable termination provisions

While not an immediate action item, remember that changes to fringe benefits will require you to revise your plan communications and amend relevant plan documents. Although the tax reform bill faces tough challenges, it’s worth spending a little time now to ensure you aren’t caught flat-footed if a reform package passes Congress.

Wade Symons
by Wade Symons

Partner, Mercer Health

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