TCJA payroll update: Deductions – employee and employer
April 16, 2018
By Tracey Lueken-Burds, CPP, Partner
Major talking points with the Tax Cuts and Jobs Act (TCJA) are the changes to itemized deductions for individuals as well as deductions for business entities with employees. As an employer, you must also be mindful of the impact the elimination of itemized deductions could have on your employee base. Here is a quick summary of the deductions and what you should be aware of:
Non-reimbursed business expenses: All miscellaneous itemized deductions subject to the two percent floor were eliminated with the TCJA. This means those non-reimbursed work expenses your employees may be claiming such as meals and miles will no longer be deductible for them. The trucking and distribution industries are good examples of those affected by this change where not all business expenses may be reimbursed, depending on the employer’s policy. Employers may want to reevaluate policies on reimbursements as employees may question how you are going to deal with the loss of their deductions.
Qualified moving expenses: Reimbursements for qualified moving expenses are no longer tax-free with the TCJA. Previously, you could pay some qualified moving expenses tax-free related to the actual move like rental truck expenses, etc. Now, any kind of reimbursement is taxable. Keep this in mind as you develop offers and contracts with new hires as you may need to gross up to assist the employee in not having to pay all the tax on their own.
Employee achievement awards: Under the TCJA you can still provide up to $1,600 in employee achievement awards tax-free, however they must be tangible personal property awards. Gift cards and cash awards are taxable, regardless of the reason they are provided.
Qualified transportation fringes: Parking, bus passes and transit pools are still tax-free up to $260 per month, however you can no longer deduct this on your business’s tax return. Additionally, any bicycle commuting benefit you may have been paying employees tax-free is now taxable.
Employer-provided educational assistance: Employers can still provide up to $5,250 tax-free for educational assistance as long as it is in a written plan.
Keep abreast of changes like these affecting your employees as the tax law changes made in the TCJA come to fruition over the next few years.