Last week, the House Committee on Ways and Means released a tax reform bill, entitled the Tax Cuts and Jobs Act. The bill focuses on changes to corporate and individual tax provisions, but it also includes some items applicable to HR and employee benefits.
The bill is not law, and will certainly undergo changes if it moves through the legislative process. As initially drafted, however, the bill makes some revisions to typical employer benefit offerings.
- Some provisions of the bill change the tax impact of executive compensation. The bill limits the deductibility of annual performance-based compensation in excess of $1 million for the CEO, CFO and three top-paid employees. It imposes a 20% excise tax on compensation in excess of $1 million paid to the top 5 employees of certain tax-exempt organizations. It also changes the timing of taxing nonqualified deferred compensation.
- The bill makes changes to tax-qualified retirement plans, including expanding the ability to receive in-service hardship distributions and changes in the ability to roll over loan balances.
- The bill eliminates the pre-tax benefit dependent care flexible spending account plans. The bill does increase the child tax credit which may be more advantageous than a dependent care FSA for certain employees, depending on compensation level.
- The bill does away with the tax benefit of certain fringe benefits for employees, including transportation plans, adoption assistance plans, moving expense reimbursement programs and employee achievement awards.
Employers should pay attention to the Tax Cut and Jobs Act as it moves through the legislative process. More changes impacting employers will certainly be on the horizon.