Tax Act has eliminated 3 common transportation and business-related expenses
The recent Tax Cuts and Jobs Act (TCJA) has jumbled how HR and payroll departments handle the already-complicated world of fringe benefits. The rules for everything— from relocation expense reimbursements to educational assistance and third-party sick pay—has changed in some way. With the tax year more than half over, now’s the time to be sure you know how to calculate the personal use of a company car, when to tax bus pass allowances, and more.
With the Internal Revenue Service (IRS) looking for consistency of treatment, employers can’t afford to make mistakes when it comes to fringe benefits calculations, says payroll tax expert Vicki Lambert. Those calculations are extra-complicated because each follows their own set of requirements, she explains.
Axed: Commuter Benefits
Fringe benefits for qualified transportation expenses took a big hit in the bill, according to employee benefits attorney Eric W. Gregory.
“In the past, employers have been able to deduct expenses related to ‘qualified transportation fringe benefits’ such as qualified parking, transit passes, transportation in commuter highway vehicles, or qualified bicycle commuting reimbursements,” he wrote. But those benefits “are no longer deductible for employers when provided under a salary reduction arrangement, where the employee has the choice between the actual receipt of compensation and the qualified transportation fringe benefits.”
Option: Employees, however, will still be able to make elections under a salary reduction arrangement to exclude the benefit from their income, although bike commuting reimbursements are out of the picture though at least 2025 under the current law.
While most employers will probably find less of an incentive to provide transport-related benefits, they may still provide additional deductible compensation as long as the expenses are “ordinary and necessary.”
One important detail, notes Market Watch, is that qualified transportation benefits are still good through this year—the changes don’t go into effect until Jan. 1, 2019.
Axed: Moving Expenses
Another goner from the world of fringe benefits are reimbursements for moving expenses, notes consultants BLR. Under the old tax plan, qualified moving expenses could be excluded from an employee’s income and deducted by the employer.
“The TCJA suspended the qualified moving expense exclusion and employee deductions for moving expenses that are not paid for or reimbursed by the employer,” BLR editors note. “Now the amount must be reported as compensation for services and withheld upon (except with respect to certain active duty members of the armed forces).”
Option: There is a work-around, however—a gross-up may be considered which would make the employee whole for moving expenses, or some employers could grant a one-time taxable bonus to offset moving costs.
Axed: Meals & Entertainment Deduction
Another notable fringe benefits loss was the 50-percent deduction for business-related entertainment, reports HR consultants at Ogletree Deakins.
“Effective January 1, 2018, the 50 percent deduction on entertainment expenses is repealed, regardless of whether the entertainment is business-related,” the firm notes.
Benefit retained: One survivor of the TCJA, however, is the 50 percent deduction for employer-provided meals.
“The TCJA also does not impact the employer’s 50 percent deduction for meal expenses incurred by employees on work travel,” Ogletree Deakins adds. “However, because the TCJA eliminated the entertainment expense deduction, any expenses associated with an employer’s provision of an on-site gym for employee use are fully nondeductible.”
In addition to the above-detailed changes, Lambert notes that employers should understand how the tax law affects various other fringe benefits, including: benefits for working conditions, employee discounts, holiday gifts, gift certificates, cash and non-cash prizes, and cell phones. HR professionals must get these deductions right—or face unwanted attention from the IRS.
(This post first appeared in a ProfEd blog)
By Jeff S on 25th September 2018
