For those in corporate accounting – especially those operating on a calendar year who have closed the books on 2017 – it is time to start thinking about how the Tax Cuts and Jobs Act (Tax Act), passed in December, will impact our employers. The drop in corporate rates, changes to the taxation of foreign operations, and elimination of the corporate alternative minimum tax have received significant media coverage. In fact, you may have started to address these changes when preparing your 2017 corporate tax provision. This article will focus on other components of the new tax law that could impact your company’s operations in 2018 and beyond.
A few of the changes could affect your employer’s human resources department and employee benefits offerings. For instance, there has been a change to transportation benefits. Previously, an employer could exclude qualified commuting expenses (parking, public transit, etc.) from employees’ wages and take a business deduction for them. The Tax Act has eliminated the employer’s deduction for such expenses, though the expenses may continue to be excluded from employees’ taxable compensation. Employers offering this pretax transportation benefit should reexamine whether it is worth continuing without the deduction from business income.
Another impact on human resources could come from the clarification of employee achievement awards and exclusions from employees’ taxable income.
The Tax Act specifies cash, gift cards, vacations, meals, lodging, entertainment event tickets, and investment securities as being excluded from the definition of tangible personal property; therefore, they are ineligible for exclusion from employee compensation. If your company has historically given such items as employee awards, other tangible property may have to be substituted or payroll processes will need to be updated to capture these awards, which are now deemed taxable.
Not all revisions to employee benefits have been negative. For example, there is a new credit for paid family or medical leave. To be eligible for the credit, employers must establish a written policy that defines minimum benefits for all qualifying employees and includes certain employee protections specified in the law. Employers could be eligible for a credit of 12.5 percent to 25 percent of wages paid for a maximum of 12 weeks of paid employee family or medical leave. Companies already offering paid leave programs will want to make sure their programs are compliant with the new requirements and verify that payroll systems are capturing the data needed to compute the credit. As unemployment continues to fall and competition for top talent increases, this change presents an opportunity to add a new employee benefit that is now subsidized by the federal government.
Beyond employee benefits, tax reform made a significant change to business entertainment and meal expenses. Business entertainment, amusement, or recreation that was formerly 50 percent deductible is no longer deductible to any extent. Business meals that were 50 percent deductible retain that deduction, and employer-provided meals that were previously 100 percent deductible are now generally reduced to 50 percent deductible. Corporate accounting departments need to be aware of these new deductibility classifications to make sure that expenses are aggregated correctly when computing taxable income.
Business decision makers should be aware of the expansion of bonus depreciation allowances when considering asset purchases for the next several years. Full expensing of qualified capital assets is available through 2022, with a phaseout through 2026. Used property, with limited exceptions, has been added to the definition of qualified property. The timing of significant asset purchases should continue to be factored into general tax planning for businesses, and the expansion to include used property may now provide more flexibility.
The Tax Cuts and Jobs Act is complex and includes many changes that may or may not impact your organization. Now that the 2017 year-end is behind most of us, now is the time to think about how tax reform might impact your company’s employee benefits, payroll, entertainment, capital asset purchases, and other areas. CPAs in industry can lead the way by maximizing tax incentives and efficiently keeping our employers compliant with new business tax requirements.
Aaron R. Risden, CPA, is chief administrative officer for Vision Benefits of America in Pittsburgh. He can be reached at email@example.com.