What Employee Benefits Are Tax Deductible Under the TCJA?

Various tax breaks are available for businesses that provide certain benefits to their employees, such as meals and moving expense reimbursements. However, many of these employee benefit tax deductions and credits have been changed – and in some cases, totally eliminated – by the federal tax reform bill, or Tax Cuts and Jobs Act (TCJA). Both employers and employees are encouraged to learn about the tax changes resulting from the TCJA, which was passed in 2017, in order to make more informed tax planning decisions. Whether you are an employee or a business owner, the experienced small business tax accountants of Cook CPA Group can help you take advantage of the tax breaks you qualify for – without being caught off-guard by the changes the TCJA has made to the tax code.

2018 Tax Law Changes: How the TCJA Affects Employee Fringe Benefit Deductions

Beginning with the 2018 tax year, the TCJA will eliminate at least four tax breaks for providing employee benefits: deductions for employee achievement awards, qualified transportation fringe benefits, employer-provided meals, and employer-paid moving expenses. A business tax preparer from Cook CPA Group can help you understand how your company might be impacted. Our California accounting firm provides business tax services in Sacramento and Roseville for corporations, partnerships, limited liability companies (LLCs), and sole proprietorships.

Employee Meals Tax Deduction 2018

The TCJA temporarily imposes new restrictions on employee meal deductions – which will be eliminated altogether in 2025. Under the tax reform bill, employers may only deduct up to 50% of the expenses for supplying employee meals. Before the TCJA, 100% of “de minimis” (occasional) employee meals and 50% of business meals were deductible.

Moving Expense Reimbursement 2018

For the period from 2018 through 2025, employees will no longer be able to exclude from their taxable income reimbursements received from their employers for certain moving expenses. However, special rules may apply to moving and storage expenses incurred by active duty servicemembers in various branches of the U.S. military.

Qualified Employee Transportation Fringe Benefits 2018

Under the TCJA, companies may no longer deduct expenses that they incurred by supplying qualified employee transportation fringe benefits. These benefits generally include qualified parking, transit passes, certain types of highway transportation, and reimbursements for qualified bicycle commuting. While employers may generally continue to offer these benefits tax-free, the associated expenses cannot be deducted.

Employee Achievement Awards and Tax Reform

With some exceptions and limitations, current tax laws generally allow employees to exclude from their taxable income “tangible personal property (other than cash, a gift certificate, or an equivalent item)” if it is received from their employer as a reward for providing excellent service or practicing exceptional on-the-job safety. Under the new tax laws, both the employee exclusion and the associated business tax deduction will be completely eliminated, with some exceptions applicable to certain gift certificates.

One aspect of the law will remain unchanged: the IRS will continue to impose exclusion and deduction limits of $400 or $1,600, depending on whether the award is a “qualified plan” award. Employers must therefore be careful to draw clear and correct distinctions between qualified and nonqualified plan awards.

Qualifying for the New Paid Family Leave Tax Credit

Though the TCJA eliminates various tax breaks, it also establishes one, creating a new tax credit for businesses that offer paid family and medical leave to employees whose wages meet certain standards. Keep in mind that this employer tax credit is only applicable to wages paid to employees during 2018 or 2019. Depending on the employee’s wages, the tax credit may range anywhere from 12.5% up to a maximum of 25%.

As with other tax credits, there are strict standards to qualify. In order for a business to be eligible for the tax credit, the following conditions must be met:

• The company must offer, at minimum, two weeks of paid family and medical leave to qualified employees per year, subject to the terms and definitions set forth in the Family and Medical Leave Act (FMLA), which is a federal law enforced by the Department of Labor (DOL), Wage and Hour Division (WHD).
• The paid leave being provided to the employee must equal, at minimum, 50% of the recipient worker’s wages.

Finally, it’s important to keep in mind that these rules typically apply to federal regulations. If the paid leave is required by state laws (such as the California Family Rights Act), and is already included within the company’s benefits program for employees, it is unlikely to meet the standards for claiming for the new tax credit. Our business tax consultants can help you determine whether you qualify.

TCJA Tax Planning and Accounting Services for Small Businesses in California

Whether you are an employee or a business owner in California, the Tax Cuts and Jobs Act is likely to have major impacts on your long-term tax planning strategy – not only for the upcoming tax year, but potentially, far beyond. Working with a knowledgeable and experienced tax professional puts you in a better position to benefit from the tax code, while making sure that you are taking appropriate steps to comply with the provisions of the law.

To discuss personal or business tax planning under the TCJA, contact Cook CPA Group online, or call our accounting firm at (916) 432-2218 for a free tax consultation. We work with individuals and small to midsize companies throughout the Roseville and Sacramento, CA areas.