Tax Reform Bill

The 2017 Tax Act passed Congress on December 20, 2017, and was signed into law by the President on December 22. The following is a summary of major changes impacting employee benefits.

ACA Individual Mandate Repeal

From 2019 onwards, individuals will no longer face a tax penalty for going without health coverage. This provision does not, however, alter any employer reporting or coverage obligations under the Affordable Care Act, which continue to be enforced by the IRS

No Employer Deduction for Commuter Benefits

In its annual inflation and cost of living adjustments, the IRS increased the monthly contribution limits for qualified transportation fringe benefits from $255 to $260 for mass transit, as well as parking expenses, in 2018

However, under the tax bill, employers will no longer receive a business deduction for providing mass transit, commuter highway vehicle, or parking benefits to employees, except as required for ensuring employee safety. 

NOTE: Employees may continue to use their own pre-tax income to pay for mass transit or workplace parking, via employer-sponsored salary reduction programs. 

Paid Family and Medical Leave Credit for Employers

Under the bill, qualifying employers will receive a tax credit for providing paid family and medical leave to employees, beginning in 2018. Employers can now claim a general business credit, equaling 12. 5 % of the wages paid to qualifying employees on family and medical leave. 

Eligible Employers: An employer will be considered eligible for the general business credit if they provide:
  • At least 2 weeks of paid family and medical leave per year for all “qualifying” employees, including part-time employees.
Qualifying Employee: An employee who has been employed for 1 or more years and whose salary in the previous year did not exceed 60% of the amount for “highly compensated employees” under the tax code ($72,000 in 2017). 
  • At least 50% wage replacement for the employee while they are on leave. 
NOTE: Employers who provide more than 50% wage replacement for employees will be entitled to a greater percentage of the general business credit, up to a maximum of 25%, for 100% wage coverage. 

The credit only applies to qualifying “family and medical leave” as defined under the Family and Medical Leave Act, and not to leave processed as vacation, personal, or sick leave. Additional guidance from the IRS and DOL is pending on this issue. 

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