Tax Cuts and Jobs Act-Employer Considerations

January 4, 2018

On December 22, 2017, President Trump signed the "Tax Cuts and Jobs Act (TCJA)", the most significant tax overhaul in the last 30 years, into law.  While there are many areas of uncertainty that will require correction through new IRS regulations, we want to summarize the following important provisions and areas that will potentially result in action items for employers.

 Employer Income and Payroll Tax Considerations:

  • Change of Individual Income Tax Rates
    • Effective January 1, 2018, the seven individual income tax rates will change to 10%, 12%, 22%, 24%, 32%, 35%, and 37%.  
        • Employers should continue to use the 2017 percentage method or income tax withholding tables until the IRS updates Notice 1036.
  • Eating Facilities and De Minimis Meals (business deduction rules)
    • Effective January 1, 2018, the previous 100% business deduction for de minimis meals and meals provided for the convenience of the employer at or near the employer's place of business is limited to 50%.
    • Effective January 1, 2026, there will be no business deduction for de minimis meals or meals provided for the convenience of the employer.
  • Employee Achievement Awards
    • Effective January 1, 2018, qualified employee achievement awards verbiage is amended to exclude cash, cash equivalents, gift cards, gift coupons or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approached by the employer), or vacation, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.
        • Employers currently providing items of intangible personal property (e.g. gift cards, vacations, etc.) should determine if they will continue with their current policy.
  • Equity Compensation-Stock and RSU (election to defer income tax)
    • Effective January 1, 2018, the TCJA adds a new subsection to §83 creating a federal income tax deferral election for eligible employees who receive private company stock options and RSU awards.  If the employee should elect to defer the federal income tax, the employer will not be entitled to a business deduction for the value of the stock until the employee pays the federal income tax.
    • An eligible employee has 30 days from the date that vested qualified stock is transferred to make an election not to recognize income at that time.
    • Only stock options and RSUs awarded in connection with services are eligible for the federal income tax deferral election.
    • The CEO, CFO, one of the four highest paid officers of the corporation, as well as 1% owners are not eligible to make the federal income tax deferral election.
  • Entertainment Expenses (business deduction rules)
    • Effective January 1, 2018, expenses incurred for entertainment or for a facility or portion thereof used for entertainment activities, even if directly related to or associated with conducting business, will be nondeductible.  This change includes, but is not limited to, golf outing, fishing, sailing, sporting events, etc.
      • Employers should consider establishing a separate general ledger account to distinguish entertainment expenses from expenses incurred for meals.
      • Employers should consider how the deduction disallowance for entertainment events with alter their business expense policy as it is currently written; additionally employers should consider including entertainment expense reimbursements in taxable wages, allowing the company a deduction through compensation expense. 
  • Family and Medical Leave (business tax credit)
    • Effective January 1, 2018, eligible employers are entitled to claim a general federal business credit of 12.5% of the wages paid to qualifying employees during any period in which such employees are on FMLA if the rate of payment under the program is 50% of wages normally paid to an employee. 
    • The credit is increased by .25 percentage points, not to exceed 25%, for each percentage point by which the rate of payment exceeds 50%.
    • An "eligible" employer is one that allows all qualifying full-time employees no less than two weeks of annual paid family and medical leave AND allows all less-than-full-time qualifying employees an amount of leave on a pro rata basis
    • A "qualifying employee" is one who has been employed for one year or more, and who, for the preceding year, had compensation not in excess of 60% of the highly compensated employee threshold.

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