New Tax Law Changes for Employee Benefits, Including Paid Family Leave
On Dec. 22, 2017, President Donald Trump signed into law the Tax Cuts and Jobs Act (Act).The Act makes significant changes to the federal Internal Revenue Code (Code), including changes that impact employee benefits.
Effective for 2018
- Employers cannot deduct expenses associate
d with qualified transportation fringe benefit programs; and
- Moving expense reimbursements are not deductible for employers and cannot be excluded from employees’ gross income.
Qualified Transportation Fringe Benefits
Code Section 132 allows employers to provide certain transportation benefits to employees on a tax-free basis. These benefits include qualified parking, transit passes and transportation to and from work in a commuter highway vehicle (vanpooling). Prior to 2018, bicycle commuting reimbursements also qualified for this tax exclusion. Qualified transportation expenses paid by either the employer or employee can be excluded from an employee's gross income, up to certain limits. For 2018, the tax exclusion limits are $260 per month for qualified parking expenses and $260 per month for transit passes and vanpooling expenses, combined.
Beginning in 2018, the Act eliminates the employer deduction for expenses associated with a qualified transportation fringe benefit program. The Act also eliminates the deduction for expenses incurred from providing transportation to an employee for travel between the employee’s residence and place of employment, except as necessary for ensuring the employee’s safety. However, qualified transportation benefits are still excludable from employees’ gross income. The tax exclusion for bicycling commuting benefits is suspended for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.
Employer Credit for Paid Family and Medical Leave
The Act creates a new temporary tax credit for employers that provide paid family and medical leave to their employees. The tax credit, which applies to wages paid in 2018 and 2019, is equal to a percentage of wages paid to employees who are on family and medical leave. Paid leave that is provided as vacation leave, personal leave, sick leave or required by state or local law is not taken into consideration.
To qualify for the tax credit, an employer must have a written policy in place that provides at least two weeks of paid family and medical leave for full-time employees (proportionally adjusted for part-time employees) and a rate of payment that is at least 50 percent of an employee’s normal pay rate.
Because most of the Act’s provisions became effective on Jan. 1, 2018, employers should start working with their tax advisors to determine how the tax changes will impact their businesses.
Court Vacates EEOC's Wellness Rules for 2019
On Dec. 20, 2017, the U.S. District Court for the District of Columbia vacated key provisions of the Equal Employment Opportunity Commission’s (EEOC) final rules for employer-sponsored wellness plans. However, to avoid disruption to employers, the court stayed its ruling until Jan. 1, 2019. The EEOC’s final rules allow employers to offer wellness incentives of up to 30 percent of the cost of health plan coverage.
In an earlier ruling, the court held that the EEOC failed to provide a reasoned explanation for the incentive limit and sent the final rules back to the EEOC for reconsideration. In its latest ruling, the court vacated the final rules’ incentive limits, stating that the EEOC’s unhurried approach for issuing new wellness rules is unacceptable. The court also strongly encouraged the EEOC to speed up its rule-making process for wellness programs.
For now, the EEOC’s final wellness rules remain in place. However, beginning Jan. 1, 2019, the final rules’ guidance on permissible incentive limits for voluntary wellness programs will no longer apply. Due to this new legal uncertainty, employers should carefully consider the level of incentives they use with their wellness programs and continue monitoring developments on the EEOC's rules.
DOL Increases Civil Penalty Amounts for 2018
On Jan. 2, 2018, the Department of Labor (DOL) issued a final rule that increases the civil penalty amounts that may be imposed on employers under various federal laws. The final rule increases the civil penalty amounts associated with:
- Failing to file an annual Form 5500 under the Employee Retirement Income Security Act (ERISA);
- Repeated or willful violations of minimum wage or overtime requirements under the Fair Labor Standards Act (FLSA);
- Willful violations of the poster requirement under the Family and Medical Leave Act (FMLA); and
- Violations of the poster requirement under the Occupational Safety and Health Act (OSH Act).
The increased amounts apply to civil penalties that are assessed after Jan. 2, 2018.
Employers should become familiar with the new penalty amounts and review their pay practices, benefit plan administration and safety protocols to ensure compliance with federal requirements.
For answers to questions or more information, please contact your Higginbotham representative.
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