PrimePay article: Congress Passes New Tax Plan

PrimePay article: Congress Passes New Tax Plan

The GOP tax bill was passed by the House and Senate, both chambers voting along party lines, and sent to the President for signature on December 20.

Click here to read the article online. This article was originally written and published by PrimePay.

The GOP tax bill was passed by the House and Senate, both chambers voting along party lines, and sent to the President for signature on December 20.

There were a few technical issues (theSenate Byrd Rule’) raised by the Senate parliamentarian which required several provisions in the version first passed by the House be modified or eliminated, such as the expansion of 529 savings accounts for payment of elementary or high school tuition. The version ultimately sent to the President did not include the 529 expansion.
Weighing in at over 500 pages, we are still in the process of reviewing the law in its entirety. But upon initial review it appears that the law will have a varied impact on businesses and individuals, based upon geography and earnings.

It does contain a number of provisions relating to benefits that should be of interest to employers:

  • The law repeals the individual mandate under the Affordable Care Act (ACA) by lowering the penalty amount to $0 (for all months following December 31, 2018). Beginning in January 1, 2019, individuals will not be penalized for failing to have minimum essential coverage (MEC). 
  • The law does not repeal the employer mandate. Employers are still subject to the requirement of offering affordable, minimum value group health coverage. Or, risk potential liability exposure under the employer shared responsibility (‘pay or play’ provisions) of the ACA.
  • The law has a significant impact on commuter benefits, eliminating bicycling commuting reimbursement in its entirety. The law also eliminates the employer deduction for providing any qualified transportation plan. As of January 1, 2018, companies may no longer provide assistance to employees towards parking or transit passes. Companies are still allowed to pay the cost of parking and transit passes to employees, but the company no longer receives the tax deduction. 
    Employees who pay for their own transportation cost are still permitted to use pre-tax income.
  • Another fringe benefit effected under the new law is the elimination of qualified moving expenses for all individuals, except for members of the uniformed services moving due to a permanent change of station.
  • There will now be a family and medical leave credit for employers subject to FMLA (Family and Medical Leave Act). The credit will be a dollar amount equal to a percentage of wages paid to qualifying employees, during any period during which employees are on FMLA leave.

The tax changes will affect businesses and individuals unevenly, with winners and losers often being determined by industry or geography.

An analysis by the Tax Policy Center found that the bill would reduce taxes, on average, by about $1,600 in 2018, increasing after-tax income by 2.2 percent, with the largest benefit going to the wealthiest households. Additionally, the child tax credit would temporarily double to $2,000 per qualifying child from $1,000. It would be refundable up to $1,400 and start to phase out at $400,000 in income. The change would expire after 2025.

On the other side of the coin, the new law limits state and local tax deductions. It allows the deduction of up to $10,000 in state and local sales, income or property taxes (SALT). It is unclear if this will be offset by the raising of the standard deduction as most projections by the Joint Committee on Taxation are very preliminary.

These changes may have indirect consequences on employer provided benefits. For example, the increased tax credit may have a chilling effect on Dependent Care Accounts. Similarly, if individuals have an overall reduction in take home pay as a result of the SALT deduction being limited, fewer dollars may find their way into health flexible spending accounts (FSAs) or health savings accounts (HSAs).

Further, the elimination of the individual mandate will cause a 10% increase in premiums for individual coverage offered through the Marketplace. This increase in cost may cause individuals to migrate onto their employer plans based upon the cost of their employer’s group health coverage or drop coverage completely. With fewer healthier individuals enrolling in employers’ group health plans, their plans may also see increases in premiums.
Tax breaks for retirement savings plans remain in place.

The Pay-As-You-Go Act of 2010, known as PAYGO, calls for automatic spending cuts when the federal budget deficit is increased. Generally, a line is added to a bill exempting it from PAYGO. But, this can’t occur under reconciliation (the method of passage using only Republicans). Since the law is estimated to reduce government revenue by $1.5 trillion, the law is expected to kick in next year. Congress will be required to pass a separate bill apart from the tax law,or trigger automatic spending cuts (known as sequestration), to mandatory spending programs. This may result in another partisan showdown in the near term.

We will continue to update and inform you as we better understand the full effect of the new law.


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