The Tax Cuts and Jobs Act of 2017 has been approved. What does this mean for your business?

Congress passed The Tax Cuts and Jobs Act of 2017 on Dec. 20 and President Trump signed it into law two days later. The sweeping tax reform is expected to impact several areas of interest to HR:

Executive Compensation

The $1 million deduction limitation for compensation of top executives will include commission and performance-based pay. It also expands covered individuals to include CFOs, CEOs and the three highest-paid employees. The lowering of the top federal income tax bracket to 37 percent will leave top earners with additional net income.

Paid Leave Credit for Employers

Employers that provide paid family and medical leave can claim a general business credit for a portion of wages paid to employees who take leave under the Family and Medical Leave Act (FMLA). To receive the federal credit, employers must offer paid leave to all full and part-time workers who have been with the organization for at least one year. The employer must provide at least two weeks of leave and pay workers at least 50 percent of their regular earnings. The government will cover from 12.5 to 25 percent of the benefit cost, depending on how much the employer is paying. The program will end after 2019 unless extended by Congress.

Sexual Harassment Settlements

Settlement payments to resolve claims of sexual harassment or sexual abuse that have non-disclosure agreements are not deductible as a business expense.

Achievement Awards

Previously, an employer could deduct $400 per employee annually for awards of “tangible personal property.”  A higher limit of $1,600 has been set, although specific items such as cash, gift cards, cash equivalents, vacations, meals, lodging, event tickets, and some other items have been excluded.

Commuting Benefits

Mass-transit and parking expenses up to $260 per month will be tax exempt to employees who contribute pretax income to an employer-sponsored transit program. However, employers who were giving away parking and transit passes and claiming the business deduction will no longer be able to claim these costs.

Other Expenses and Perks

Moving expenses: If an organization pays for a worker’s moving costs, the amount will now be considered income to that employee and will be taxed accordingly. There is an exception for certain active-duty members of the armed forces.

Onsite gyms: For corporations, the expense of operating an on-premises athletic facility is now treated as unrelated business taxable income. However, employees can continue to exclude the benefit from income.

Meals & Entertainment:  Meal and entertainment expenses will remain tax-free to the employee; however, employers may no longer claim a tax deduction for these expenses. If an employer provides food and beverages to its employees through an in-house cafeteria or qualified facility, the company can deduct 50 percent of those costs until 2025.  After 2025, any meals provided at an in-house facility will not be deductible.

To see the full text of the tax legislation, click here.

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