How Is the New Tax Law Affecting Employee Benefits?

How Is the New Tax Law Affecting Employee Benefits?

On December 22, 2017, the President signed the Tax Cuts and Jobs Act. As a result, many employee benefits were influenced. Here are five of the benefits affected.

401(k) Loans

Employees who have a loan from their 401(k) account when leaving their employer may receive some relief. Typically, when leaving an employer and owing money from a 401(k) loan, the employee has a short timeframe to pay off the loan. If the loan is not repaid, the amount is deducted from the account balance. Before the new tax law, if an employee rolled over their remaining 401(k) balance to an Individual Retirement Account (IRA) or another employer plan, the employee would be taxed on the loan balance if they did not repay the amount within 60 days. Because the loan balance was treated as a taxable distribution, the employee may have to pay a 10 percent early withdrawal penalty. Since the new tax law was passed, the employee has until the tax-due date (typically April 15) of the following year to repay the loan into the rollover account, so it is not treated as a distribution.

Moving Expenses

Before the new tax law, when an employer paid for an employee’s moving expenses, the amount was not taxable for the employee. Because the tax-free treatment is now suspended through 2025, employer-paid moving expenses will be considered income to the employee and taxed accordingly. Active-duty military members are exempt from this law.

Commuting Breaks

Employees may use up to $260 pretax each month to pay for transit or parking expenses, but employers will not receive a deduction for contributing toward those expenses. Also, employees who bicycle to work and receive the $20 monthly limit from their employer to reduce the costs of cycling will be taxed on that money. Therefore, employers may decide to stop helping with commuting expenses.

Unreimbursed Business Expenses

Prior to the new tax law, an employee who itemized tax deductions could deduct unreimbursed employee business expenses as a miscellaneous itemized deduction within specific parameters. Because of the new law, miscellaneous deductions are no longer allowed. If an employer does not reimburse an employee’s business expense, the expense may not be claimed as a tax deduction.

Expenses for Employer-Operated Eating Facilities

Meals provided for employees at an employer-operated eating facility may be tax-free to employees. If the facility is on or near the employer’s place of business; the facility’s annual revenue equals or exceeds its direct operating costs; the facility does not discriminate in favor of highly compensated employees; and meals are provided for the employer’s convenience, meals may remain tax-free to employees. However, the new tax law imposed a 50 percent limit on deducting food/beverage expenses to employees at an employer-operated eating facility. The expenses will be fully nondeductible as of Jan. 1, 2026. Therefore, employers may stop providing employer-operated eating facilities.

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