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Impact of Tax Overhaul on Employers

As President Trump readies to sign the Tax Cuts and Jobs Act of 2017, employers can begin to prepare for several impacts of the Act. Aspects of this tax overhaul that will affect employers include the following:

  • Addition of a prohibition against deducting settlements — and attorney fees and costs involved in defending matters — involving sexual harassment or sexual abuse when the settlement includes a nondisclosure agreement.
  • Creation of a new paid leave-related tax credit, permitting eligible employers to claim a tax credit equal to 12.5 of wages paid to an employee during a qualifying family and medical leave.
  • Prohibition of certain deductions related to expenses incurred as a result of governmental penalties, investigations, not including amounts identified in the order as restitution, remediation or otherwise required to come into compliance.
  • Modifications, including suspension of some aspects, of the ability to deduct/exclude income related to the following:
    • Moving expenses,
    • Business entertainment expenses, including so-called “country club” membership dues and expenses,
    • Transportation fringes, like parking expenses, bus passes, etc.,
    • Food and beverages provided as a courtesy to employees at the employer’s facility for the benefit of employers,
    • Employee lifetime achievement awards,
    • Certain miscellaneous expenses previously deductible when they exceeded, in the aggregate, 2% of the employee’s gross income, including the employee’s ability to deduct for such things as a home office, union dues and licensing fees,
    • Compensation under $1-million for certain “covered employees” of a publicly traded company, including the previous exemption for commission- and performance-based pay, with limited grandfathering rules.
  • Addition of a 20% excise tax for nonprofits (including 501(c)(3) and (6)’s) whose five highest paid employees earn more than $1-million.
  • Changes to tax brackets with anticipated changes to tax withholding  commencing in 2018.
  • Repeal of Obamacare’s individual mandate.

There are sure to be more lessons in this new law as it is analyzed. Employers should review this new tax law with experienced Benefits legal counsel and accounting professionals.

Please note the bold and italicized bullet points in particular warrant particular attention, not only of an employer’s accounting, compensation and payroll professionals, but also its Legal and HR departments.

Source: Tax Cuts and Jobs Act of 2017.