Alert / Employee Benefits
What’s In and Out of the Tax Bill for Benefit Plan Sponsors

Click, click, click, click, click . . . . That sound you hear? That’s the tax reform roller coaster starting down the tracks. For now, the best news for benefit plan sponsors might be what’s not in the Tax Cuts and Jobs Act, which was introduced by Republicans in the House on Thursday.

Several controversial ideas that were floated as ways to help pay for the bill’s tax cuts were discarded. With the help of a strong grassroots opposition effort, the tax bill does not change the tax-free nature of employer-provided health coverage, nor does it make changes to pre-tax 401(k) contributions; there was talk that pre-tax contributions to 401(k) plans would be capped at $2,400.

Lockton comment: See our Alert from Lockton Retirement Services for more information about the retirement and corporate implications of the tax bill.

The tax bill represents a major overhaul to the current tax rules and eliminates or substantially modifies numerous provisions that may affect an employer’s total benefit package offerings. A detailed 76-page summary is available here.

The following employer-provided benefits would no longer be tax free to employees:

  • Dependent care assistance (this means dependent care flexible spending accounts would be prohibited, even if funded by employees; the bill would, however, increase the child tax credit, but employers would lose the tax credit for providing on-site child care).
  • Moving expense reimbursements.
  • Adoption assistance.
  • Education assistance.
  • Achievement awards.

Lockton comment: Employers could continue to provide these benefits, but employees would pay income and payroll taxes, and employers would also owe payroll taxes for any payments.

Although the following benefits won’t be taxable to employees, the employer would lose its deduction for some common expenses:

  • Transit benefits.
  • On-site athletic facilities.
  • Entertainment, amusement or recreation activities, facilities, or membership dues.

Lockton comment: Most changes are effective beginning Jan. 1 2018. This might present an administrative headache for employers who have already made benefit decisions and set up payroll systems. There’s no telling when or if the tax bill will pass, let alone what provisions might survive as part of a final package, so we expect many employers will proceed with their current benefit offerings. Employers might need to move quickly to adapt to any finalized tax law changes.

The ride has just begun, and the tax bill is almost certain to see many ups and downs – a reality common to most pieces of major legislation affecting a variety of stakeholders. In fact, reports indicate there will likely be changes even before the House Ways and Means Committee begins debating the bill next week. Debate in the committee will likely produce more changes before the full House votes on the measure, which GOP leaders hope will occur before Thanksgiving. Any bill clearing the House would then need to be reconciled with whatever version of tax reform is hatched in the Senate, which will likely be introduced in the Senate Finance Committee in two weeks.

The Scarlet Letter 226J: IRS Readies Employer Mandate Penalty Notices for 2015

The IRS said this week it expects to begin issuing to employers, this month or next, notices of the intent to assess an employer mandate penalty for 2015, based on information reflected on the employer’s Form 1094-C and Form 1095-C filings for that year.

If you’re one of the employers unfortunate enough to receive such a letter, it will come as Letter 226J. On an attached Form 14765 it will identify your full-time employees who received subsidized individual health insurance through an online ACA marketplace in 2015. Those are the employees for whom the IRS thinks you owe a penalty. If you disagree, you may state your case on Form 14764, which will also be attached to the letter.

Look for more information from us on the appeal process as we learn more from the IRS. See the IRS’s announcement here (scroll down to FAQs 55-58).

Bill to Substitute Federal Blanket for Patchwork Quilt of State Leave Laws

This week three GOP House members introduced a proposed employee paid leave law, the Workflex in the 21st Century Act. Employers who adopt a “workflex” plan would be required to provide paid leave to all employees and offer them the option to participate in at least one of six flexible scheduling options, such as telework, flexible scheduling or job sharing. 

The paid leave could be used as employees see fit; there are no restrictions. The amount of an employee’s paid leave would depend on the size of the employer and the employee’s tenure. The maximum amount of paid leave required by the proposed bill would be 20 days.

What’s in it for the employer? An adopting employer would be shielded from having to comply with state and local paid leave laws, which have been proliferating and proving administratively troublesome for employers forced to comply with a variety of them.

Scott Behrens, JD
Edward Fensholt, 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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