Alert / Retirement, Employee Benefits
House Tax Bill Clears Committee, Senate Unveils its Own Bill

Republicans in Congress continue to make progress on a tax reform bill despite numerous headwinds. The House passed an amended version of its bill out of the Ways and Means Committee, and a day later the Senate Finance Committee released a sketch of its own tax bill, which it will begin debating next week.

The modified House bill was notable for its course reversal regarding nonqualified deferred compensation benefits for executives. The House’s initial version would have effectively eliminated executives’ ability to postpone taxation of deferred compensation beyond the date the executive terminates employment, but the revised House bill removed that change in the tax law. The House bill cleared the Ways and Means Committee on a strict party line vote.

The Senate’s tax bill differs from the House bill (discussed in last week’s Update) in a number of key areas, but is similar in that it does not modify the tax-free nature of employer sponsored health or qualified retirement benefits – under potential threat due to the need to find ways to pay for other tax cuts. Additionally, the Senate bill, like the original House bill, accelerates taxation of deferred compensation for executives.

The Senate Finance Committee has not yet revealed legislative text, but its summary provides helpful information for curious benefit plan sponsors.

Significant for employer plan sponsors is that the Senate’s proposal does not eliminate dependent care flexible spending accounts. The original House bill eliminated the ability of employers to sponsor these programs, which allow working parents to pay up to $5,000 of daycare expenses tax free.

Lockton comment: The House’s revised tax bill still calls for the elimination of employer-sponsored dependent care assistance, but postpones the effective date to 2023, instead of 2018 as first proposed.

The Senate’s bill also keeps the adoption tax credit, which was also eventually preserved in the House bill through a late amendment. Like the House’s tax bill, the Senate’s proposal makes moving expense reimbursements taxable and eliminates an employer’s ability to deduct expenses for numerous fringe benefits, including transit benefits.

Lockton comment: See our Alert from Lockton Retirement Services, which describes numerous other provisions of the Senate’s proposal, including how it would impact retirement plans like 401(k) and nonqualified deferred compensation plans.

Next week the Senate Finance Committee is expected to begin debating the Senate proposal, and the full House is expected to vote on the House’s tax bill. Assuming a bill emerges from both bodies of Congress, the differences will have to be reconciled, and each chamber will need to vote again on the compromise bill.

Lockton comment: Numerous political hurdles remain, including sharp policy disagreements within the GOP caucus, but Republican lawmakers to whom we’ve spoken continue to be optimistic about passing a comprehensive tax package by the end of the year.

Scott Behrens, JD
Lockton Compliance Services

Not Legal Advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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