Lawmakers give final approval to Tax Cuts & Jobs Act conference committee report
The Republican led Congress celebrated passage of the biggest rewrite of the U.S. tax code in decades on Wednesday. President Trump will soon affix his signature to the $1.5 trillion overhaul that is expected to have broad and far reaching implications for both individual and corporate finances….making good on his promise to deliver tax cuts before the holidays.
Key provisions affecting employee benefits are summarized below (changes are effective January 1, 2018 unless otherwise noted).
Fringe Benefit Provisions
Dependent Care – No change to current law. Note: Under the House proposal, employer-provided dependent care assistance would no longer have been tax exempt; meaning dependent care FSAs would have been eliminated.
Transportation – Repeals employer deduction for any qualified transportation fringe benefit. Employers may not deduct any expense incurred in providing, paying or reimbursing employee commuting expenses. These benefits will continue to be tax exempt for employees.
Bicycle Commuting – Qualified bicycle commuting expenses will no longer be tax exempt to employees effective for tax years between 2017 and 2026 (provision sunsets after 2025).
Individual Mandate – Repealed; reduces the penalty for not purchasing insurance coverage to zero. Effective beginning in 2019.
Medical Expense Deduction – For 2017 and 2018, the deduction threshold will be reduced from 10% to 7.5% (of AGI). For 2019 and beyond, the threshold returns to 10%.
Archer MSAs – No change to current law. Note: Under the House proposal, these tax deductible contributions would have been prohibited.
Earlier versions of tax reform would have eliminated or placed a cap on the tax exclusion for employer-provided health care, but – due in part to the efforts of entities like TASC – those proposals were never included in the legislation ultimately considered by the House and Senate. On the flip side, some of our other (pro-active) priorities, like the establishment of Flexible Giving Accounts and repeal of the Cadillac Tax were also left on the cutting room floor. While unfortunate, we will continue to press Congress to address these important issue in 2018.