GOP Delivers on Tax Reform Promise

By Kathleen Coulombe Jan 5, 2018
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The Republican-controlled Congress passed, and President Donald J. Trump signed into law, the Tax Cuts and Jobs Act (Public Law No. 115-97) on December 22. The $1.5 trillion tax package brings big changes to the he Internal Revenue Code (IRC), including new tax brackets for individuals, companies and pass-through organizations. In addition, due to the direct advocacy by SHRM and other groups, proposals to eliminate the tax-free treatment of several employee benefits were dropped from the final legislation, representing big wins for HR, employers and employees. Those include: 

  • Preservation of Employer-Provided Education Assistance (IRC Section 127): Allows employees to exclude from income up to $5,250 of education assistance provided by their employer, at the undergraduate, graduate or certificate level, per year.
  • Preservation of Qualified Tuition Reduction Programs (IRC Section 117): Allows institutions of education to provide their employees and their employees' spouses and children educational assistance tax-free.
  • Preservation of Dependent Care Flexible Spending Accounts (IRC Section 129): Allows employees to contribute up to $5,000 per calendar year tax-free into an account utilized for child care spending.
  • Preservation of Adoption Benefits: Allows employees to exclude from income adoption assistance provided by their employer, up to $13,500 (indexed for inflation).
  • Preservation of the Work Opportunity Tax Credit: Provides employers with a 40 percent tax credit for hiring individuals in certain targeted groups.
  • Preservation of Medical Savings Accounts (MSAs): Allows certain individuals to contribute to an MSA, which is a tax-exempt trust or custodial account.
  • Preservation of Catch-Up Provisions for High Earners: Allows individuals making more than $500,000 annually to make catch-up contributions to 401(k), 403(b) and 457 plans. 

Several other provisions opposed by SHRM were omitted from the final agreement, including: 

  • Intermediate Sanctions Rules Pertaining to Nonprofits: Most nonprofits exercise complete due diligence and extreme care when creating a compensation structure for their executives. The Senate proposal sought to penalize nonprofits, eliminate an important safe harbor, and expand the provision to pertain to 501(c)(5) and 501(c)(6) organizations.
  • Changes to Employer-Sponsored Retirement Plans Offered by State and Local Governments (457 plans): The House proposal sought to set deferral and catch-up contribution limits for 457 plans at the same levels as 401(k) and 403(b) plans.
  • Worker Classification and Information Reporting Requirements: The House proposal sought to create a new category of worker/contractor that is different from the standard common law/regulation based on factors indicating direction or control.
  • Non-Qualified Deferred Compensation (NQDC): The House and Senate proposals sought to modify the types of compensation that could be taxed for highly compensated employees, as well as the timing of the taxation. The proposals would have repealed the current tax treatment of NQDC plans for nonprofits and state and local governments. 

However, several changes to employer-sponsored benefits were included in the tax reform law. Specifically, organizations that currently offer moving, parking/transit or biking benefits, as well as meals or an onsite gym, will need to be aware that the tax treatment of these benefits will be changing, effective December 31, 2017. These benefits are no longer a deductible business expense for for-profit companies. While employees won't pay tax on employer-provided meals, gyms or parking/transit benefits, they will have to include moving benefits and biking subsidies in their taxable income. 

The tax bill also altered the individual insurance mandate under the Affordable Care Act, reducing the penalty to zero. While there is not a direct impact on employers, this change may have implications for the stability of the insurance marketplace and will likely cause employer-based health care insurance premiums to increase as healthy participants may now opt out of coverage. 

Led by its co-chair SHRM, the Coalition to Preserve Employer-Provided Education Assistance successfully executed a multifaceted advocacy campaign during the tax reform process that utilized earned and paid media and leveraged SHRM's thought leadership on a variety of tax-related issues. 

Many of the provisions in the new law will apply to tax years beginning after December 31, 2017. View a side-by-side comparison of the House-passed bill, Senate-passed bill and final agreement enacted into law (including all effective dates). 

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