Retirement and Medical Benefits
- The amount of a plan loan outstanding at severance from employment or plan termination can be paid to a rollover IRA as late as the income tax filing due date for the year of severance from employment or plan termination, which would avoid inclusion of the remaining plan loan amount in income.
- Recharacterizations of conversions from Traditional to Roth IRAs are no longer permitted. Other types of recharacterizations continue to be permitted, e.g., a Roth IRA contribution can be recharacterized as a Traditional IRA contribution within the permitted timeline.
- The shared responsibility payment (i.e., the individual mandate penalty) of the Affordable Care Act is reduced to zero starting January 1, 2019.
- Several provisions in the Senate and House bills were not included in the final bill, including: additional relief for hardship distributions from 401(k) plans, nondiscrimination testing relief for closed defined benefit plans, and a reduction in the earliest normal retirement age to 59.5 for certain defined benefit plans.
There is no change to the employer mandate or the employer’s reporting requirements under the Affordable Care Act. Without a penalty for an individual mandate, however, it may be less likely that an employee not offered affordable coverage by his or her employer will buy coverage on an exchange and receive a tax subsidy. This may decrease the employer mandate penalty exposure for employers, because the penalty is based on whether an employee is covered on an exchange and receives a federal subsidy.
Fringe and Other Benefits
The taxation of employees on certain non-taxable fringe benefits is modified:
- The exclusion for employer-paid qualified moving expenses is eliminated for tax years 2018 through 2025 (other than for military personnel).
- The bill clarifies that non-taxable employee achievement awards must be in the form of tangible personal property, and that awards would be taxable if provided in other forms such as cash, cash equivalents, gift cards, meals or vacations (though certain gift cards that allow a choice from a limited menu of pre-selected tangible personal property may be non-taxable).
- The exclusion for qualified bicycle commuting expenses is eliminated for tax years 2018 through 2025.
- The final bill does not include other changes proposed in the House bill, including those affecting education assistance programs, adoption assistance programs, dependent care assistance programs, and employer-provided housing.
Employer deductions for fringe benefits are also modified and limited under section 274:
- Entertainment expenses are not deductible even if “directly related to” the business. This includes meals, travel and club dues, among other items.
- The 50% deduction limit for meals related to operating the trade or business (such as employee meals while traveling for business) remains the same. For 2018 through 2025, the 50% limit also applies to meals provided at on-site eating facilities for the convenience of the employer that meet the de minimis fringe requirements, and after 2025 such meals are non-deductible.
- The employer deduction for qualified transportation and parking fringe benefits is eliminated, other than bicycle commuting expenses for 2018 through 2025.
- Employee commuting expenses are not deductible, except for expenses for the safety of the employee.