How the New Tax Bill Impacts HR

Both the U.S. House of Representatives and the U.S. Senate have passed a new Tax Reform bill, and the President of the United States has signed it into law. Now the question is how will it impact Human Resources?

The short answer: brace for impact!

It’s been more than 30 years since Congress followed through on a complete revamp of the U.S. tax code. And it’s has some points of interest that will concern Human Resource professionals for years to come.

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First: The new tax act ends the individual mandate to purchase health coverage. That starts in 2019. Put simply, this change effectively kills The Affordable Care Act as the individual mandate was the cornerstone of the law.

Second: Payroll will be impacted and Human Resource professionals could see those impacts as early as February 2018. Now that the bill has become law, the Internal Revenue Service will have to produce new withholding tables. A difficult process, but one that must be completed. Once that happens, payroll companies and those employees responsible for payroll within companies will be able to translate those tables into updated paystubs for employers. That should be done by February.

Third: If a company uses an employee transit benefit program, there will be changes.

Currently, programs can allow employees to use pretax dollars and employers to deduct contributions. According to the 2017 tax code, those are as follows:

  • Transportation expenses: $255 per employee per month
  • Parking expenses: $255 per employee per month
  • Biking-related expenses: $20 per employee per month

Under the new tax law, all of that changes in 2018.

  • Transportation expenses: $260 per employee per month
  • Parking expenses: $268 per employee per month
  • Biking-related expenses: $20 per employee per month

Another change: no longer will businesses be allowed deductions for qualified mass transit and parking benefits EXCEPT when it ensures employee safety. For employees who can still pay their own mass transit and parking costs using pretax income, those benefits will still be tax exempt. It’s important to note, however, those payments have to be through a program offered by their employer. An employee can simply claim the exemption on their own.

If an employee bikes to work, the new tax law impacts them as well. Between December 31, 2017 and January 1, 2026… qualified bicycle commuting reimbursements will be suspending. Put simply, if a company reimburses employees that bicycle to work… those expenses will be taxable and subject to payroll and income tax withholdings.

Fourth: employers providing paid family and medical leave now get a federal tax credit. That begins in 2018. Before an employer can claim the tax credit, however, the company has to meet a certain requirement.

  1. Provide at minimum two weeks of leave and pay at least 50% of the employee’s regular earnings.

The company will them get a tax credit ranging from 12.5% to 25% of the cost of each hour of paid leave.

That credit only applies, by the way, to employees earning below $72,000 per year.

Fifth: Automation and offshoring will be impacted. Generally, companies will appreciate this, but not all. Those in that category say this will not benefit their company without some form of hiring incentive.

Sixth: There are now more defined regulations concerning retirement plans.

Employees using a 401(k) plan and are currently paying a loan must have it paid completely within 60 days should they leave the company. That is standard for most plans. If the person does not pay it back in time, the person is considered to have defaulted on the loan and must pay income tax on the balance. Those under 50.5 years of age must also pay a penalty.

Under the new law, that deadline is extended to the latest date on which the former employee can file their tax return for the year of the loan default.

Seventh: Other fringe benefits will be affected.

Moving expenses, for instance. The business deduction and the exclusion from taxable income for recipients of an employer-paid moving expenses program will be suspended. That’s for years 2018 through 2025. Certain active-duty members of the armed forces are exempt.

Those companies getting a deduction for onsite gyms will disappear. It will now be considered as an unrelated business taxable income.

The deduction for meal-related expenses has also been repealed.

Eighth: Human Resource professionals also have to be aware of how the new tax law will impact other industries. The reason: industries interact with one another. As changes are implemented and industries change their practices, the effect could then affect clients in other industries.