The Tax Cuts and Jobs Act will have a big effect on the way the government taxes employer-sponsored benefit programs. Some of the changes will make it easier for you to offer benefits, while others will make it harder. President Donald Trump signed the act into law Dec. 22, 2017. It is officially called “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018.” The law is the most sweeping reform of the U.S. tax code in more than 30 years, lowering most business and individual tax rates and modernizing U.S. international tax rules.
Most of the provisions were effective Jan. 1, 2018, but some are not permanent and are scheduled to sunset after Dec. 31, 2025, unless a future Congress extends those provisions.
Here’s an overview of some changes that will affect your or your employees’ taxes on fringe benefits.
Transportation Benefit Programs
Then: Employees used pretax dollars to pay for transportation or parking expenses, and employers deducted the costs.
Now: Employees still can use pretax dollars to pay for transit expenses, but employers can no longer get a deduction.
The exception is if the benefit is necessary to ensure the safety of the employee. In that situation, the employer can deduct the cost. The law’s implementation is complicated because local laws in New York City, Washington, DC, and the San Francisco Bay area require certain employers to maintain qualified transportation fringe benefit programs. In 2018, employees can set aside up to $260 per month pretax for transportation and parking expenses if their employer maintains a transportation benefit program. The exclusion for biking expenses stays at $20 per month. The rules are different for employees who bike to work. In the past, they could receive $20 monthly from their employer to defray the costs of cycling and the benefit was tax-free. That benefit is no longer tax-free.