Observations on the New Tax Law
In our continuing effort to scan the business environment and surface important information (such as the new tax law) that we feel our clients and site visitors may need to help them make better decisions regarding their Employee Benefits Programs, we discovered this document from Guardian Life Insurance Company.
The Guardian document authored by Vice President, Government Affairs Jonathan Renfrew outlines a few key changes related to the Tax Cuts and Jobs Act of 2017. In case that title is not familiar to you, it is the official name of the recent tax cut voted in by the US Congress in December 2017 that went into effect January 1, 2018. Mr. Renfrew does a nice job of outlining a few of the major employee benefits changes that have been brought about because of the passing of this new law.
Here is a section from that document which we feel directly impacts many of our clients:
Pass-Through Tax Provisions:
About 75% of small business employers organize as pass-through entities, according to the National Federation of Independent Businesses (NFIB). The new law includes a deduction for owners of sole proprietorships, partnerships, and S-corporations generally equal to 20% of qualified business income, subject to additional exceptions. For a service business, the deduction phases out for taxpayers with income above $157,000 or $315,000 for joint returns.
Major Employee Benefit Changes:
- The new law would generally disallow any deduction for entertainment, amusement, recreation activities, or facilities, even if the expenses are directly related to or associated with the active conduct of trade or business. This includes meals, food, or beverages to the extent the expenses are related to entertainment, amusement or recreation.
- Deductions for qualified transportation fringe benefits are also generally disallowed. • There are new restrictions on the deduction of employee achievement awards.
- The deduction for qualified moving expenses and reimbursements is repealed through the end of 2025.
- The law creates a new tax credit for employers (subject to certain rules) that pay employees while on family and medical leave covered under the Family and Medical Leave Act (FMLA).
- Employer-sponsored dependent care, flexible spending arrangements, and tuition reimbursement programs remain unchanged under the new law.
The document also discusses Retirement and Educational Savings, Estate and Gift Tax Exclusion and Non-Qualified Deferred Compensation. The later has no impact as no changes were made in the new tax law in this component.
In this document, Mr. Renfrew also makes some key observations. Amongst these is the suggestion that right now might be the right time to take another look at your business’ overall benefit portfolio. We could not agree more with Mr. Renfrew. With many of the benefits business have enjoyed for many years going away and being exchanged with new provisions such as percentage rate deductions of qualified business income, there may be some opportunity to fine tune your employee benefit programs. As noted in the document, these include some of the more traditional benefits you are currently providing or are contemplating to provide in the future in order to retain or attract employees.
As you filter through the elements of the new law and work internally with your HR team to seek potential enhancements or cost savings to your benefits package, we here at HRB Solutions will work with you to outline a new plan that makes sense under the new tax law structure. It might mean a tweak to your existing configuration or perhaps it might make sense to move to a plan that is comprehensive, able to grow with your business and allows for the introduction of just the right mix of benefits for your industry and your employee retention.
There are new days ahead as we all begin to wrap our collective heads around the new tax law and what it means specifically for your business. Please contact us to start the process of determining if a change is needed to your Employee Benefits Program while we are still early in the new tax year. If you are seeking tax advice, we recommend that you contact your Tax Advisor and Attorney, our focus is on your benefits portfolio.
Here are a few additional resources that may also be of help to you:
- US Congress Summary
- Summary by the Tax Foundation
- Analysis by the Heritage Foundation
- First Look by the CPA Journal
- The Good, Bad and Ugly from Forbes