House Tax Proposal Heads to the Floor Just as the Senate Introduces Its Version

By Kathleen Coulombe Nov 10, 2017
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Yesterday, the House Ways and Means Committee passed along party lines, 24-16, H.R. 1, the Tax Cuts and Jobs Act. The bill will now move to the House floor for consideration early next week. Not to be upstaged, late last night, Senate Finance Chairman, Orrin Hatch (R-UT), released his 247-page tax proposal outline.

Through the work of SHRM and the SHRM-led Coalition to Protect Retirement, both bills did not contain provisions that would have capped or lowed the amount that employees can contribute to employer-provided defined contribution (DC) retirement plans. Additionally, the Senate bill did not propose to eliminate employer-provided education assistance (Section 127), as the House legislation does.

The House bill contained two policy provisions that SHRM has advocated on for several years – improving the guidance related to nondiscrimination testing for defined benefit pension plans and allowing employees additional time to pay back DC retirement plan loans should they be separated from employment unexpectedly.

Both bills seek to make changes to:

  • Non-Qualified Deferred Compensation: Modifies how the taxation is calculated for highly compensated employees who are compensated via a nonqualified deferred compensation plan. The provisions would be effective after 2025.
  • Executive Compensation: Modifies the definition of what is included as compensation for highly-compensated employees. Expands the scope of covered individuals to include an organization's CEO, CFO and three highest paid employees. The House version provides a 5-year delay.
  • Excise Tax for Highly Compensated Employees of Non-Profits: Creates a 20 percent excise tax for non-profits (including 501(c)(3), 501(c)(6)) on the compensation of the five highest paid employees who earn more than $1 Million.

House bill provisions that will impact the workplace include:

  • Employer-Provided Education Assistance (IRC Section 127): Eliminates the tax exclusion that allows employers to provide up to $5,250 of education assistance per year tax-free to their employees at the undergraduate, graduate or certificate level.
  • Qualified Tuition Reduction Programs (IRC Section 117): Eliminates the tax exclusion for educational assistance for employees, their spouse or dependents at educational institutions.
  • Employer-Provided Benefits: Eliminates the tax exclusion for adoption assistance, moving expenses, child care, and employee achievement awards.
  • Medical Savings Accounts (MSAs): Repeals the tax exclusion for contributions to Archer MSAs. Existing Archer MSA balances, however, could continue to be rolled over on a tax-free basis to an HSA.
  • Work Opportunity Tax Credit: Repeals the 40 percent tax credit for employers who hired individuals from certain targeted groups.
  • FICA Tip Credit Tax: Modifies the calculation which affects the amount employers pay on taxable wages of their tipped employees. Creates a new reporting requirement.

Senate proposals that will impact the workplace:

  • Employer-Provided Benefits: Eliminates the tax exclusion for benefits related to biking, moving, transportation and meals.
  • Changes to Employer-Sponsored Retirement Plan Offered by State and Local Governments (457 plans): Sets deferral and catch-up contribution limits at the same levels as 401(k) and 403(b) plans. Also repeals former allowable contributions to 457 plans for up to five years after separation of employment.  
  • Eliminates Catch-up Provisions for High Earners: Eliminates catch-up provisions to 401(k), 403(b) and 457 plans for employees making more than $500,000 annually.
  • Worker Classification and Information Reporting Requirements: Reduces the reporting thresholds for independent contractors from $20,000 to $1,000 or $5,000 depending upon various requirements.

At this point, both House and Senate versions of the tax bills do not include a repeal of the ACA individual and employer mandate penalties.  It is possible that this provision may be included at a later date, as the Congressional Budget Office recently projected that repealing the health care law's individual mandate would save $338 billion between 2018 and 2027.

The House is expected to vote on H.R. 1 next week, while the Senate Finance Committee will begin marking up their proposal on Monday, November 13. The Senate markup is expected to span the week, with a floor vote in the full chamber the week after Thanksgiving. Because the House and Senate versions differ, they will need to be reconciled in a joint conference before a final agreement is reached and sent to the President. The Senate will also need to address other legislative priorities before the end of the year, including Deferred Action for Childhood Arrivals (DACA), appropriations and the debt ceiling.

We Need Your Help

SHRM is actively engaging House Members in an effort to advocate for the inclusion of employer-provided education assistance, and other issues, in the tax bill. SHRM is also working collectively with our partners on the Coalition to Preserve Employer Provided Education Assistance, the SHRM-led Coalition, to communicate the importance of preserving this provision as both chambers come to a consensus on a final bill.

SHRM is continuing to evaluate implications of both House and Senate tax proposals and will provide additional guidance as it become available. 

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