TOP TIP: The Tax Bill – Employment-Related Highlights
The Tax Cuts and Jobs Act that was signed into law by President Trump is a massively complex piece of legislation, containing a number of employment-related provisions. While the actual implementation of these provisions has yet to be fully fleshed out through regulations, we summarize here some of the highlights.
- Paid Family and Medical Leave Tax Credit. Employers providing between two to twelve weeks of paid family and medical leave, at a minimum of 50% of the employee’s regular wages, will be entitled to take a tax credit of between 12.5-25% of the cost of the leave, depending on the level of benefits paid. Paid leave benefits must be offered to both full- and part-time employees who have worked at least one year. This credit applies only to employees earning less than $72,000. This tax credit is available only in 2018 and 2019.
- Nondisclosure Provisions in Sexual Harassment Settlements. Employers will not be able to deduct, as an ordinary and necessary business expense, any settlements of payments related to sexual harassment or sexual abuse, or associated attorneys’ fees, if the settlement or payment is subject to a nondisclosure agreement.
- Repeal of the ACA Individual Mandate. A tax penalty will not be imposed on individuals for failing to obtain health insurance coverage. This does not affect employers’ existing obligations to offer health coverage and to comply with reporting obligations.
- Non-deductibility of Penalties for Legal Violations. Previously, businesses were unable to deduct any amount paid directly to the government in relation to a violation of any law or investigation into a potential violation. This has been expanded to include such payments to others at the direction of the government or specified non-governmental entity. Payments made as restitution or to come into compliance with the law are excluded from this provision, however.
- Commuting Benefits. Employers will no longer be able to deduct for mass transit and parking benefits, except for expenses necessary to ensure the safety of an employee.
- Achievement Awards. Length-of-service awards, safety awards, and awards given during “meaningful presentations” are no longer deductible if they are cash, cash equivalents, gift cards, gift coupons, gift certificates, vacations, meals, lodging, theater or sports tickets, stock, bond, other securities or similar items.
- Moving Expenses. Employer-paid moving expenses will no longer be deductible. This provision applies from 2018 through 2025.
- Onsite Gyms. Payments to fund onsite gyms will no longer be deductible.
- Other Fringe Benefit Deductions. Employers will no longer be able to deduct as a business expense the following fringe benefits: an activity generally considered to be entertainment, amusement or recreation; membership dues with respect to any club organized for business, pleasure, recreation or other social purposes; or a facility or portion of a facility used in connection with the prior two items.
- Executive Compensation. Publicly-held companies may not deduct more than $1 million annually in compensation for each of their senior executive officers, and the tax bill eliminates the exemption to this limit for commission- and performance-based pay. It also adds Chief Financial Officers to the covered officers.