The primary focus of the new Tax Cuts and Jobs Act (“Act”) by the United States Congress is reducing corporate and individual income taxes. However, a number of the Act’s provisions affect employee benefit programs, most of which begin on January 1, 2018. Among the most notable changes is to the individual mandate of the Affordable Care Act (or “Obamacare”), which requires that individuals must obtain minimum essential health coverage if they can afford to do so or pay penalty taxes. This mandate has effectively been eliminated beginning in 2019. Large employers (those with more than 50 employees) are subject to a separate employer responsibility mandate obligating them to provide qualified coverage to full-time employees, similarly subject to tax penalties for failure to do so, and this mandate remains effective. There may be changes to the reporting and documentation requirements for employers regarding this health insurance mandate.
The Act also allows private companies to establish a plan offering employees the right to elect to defer the recognition of income company stock acquired upon the exercise of stock options or the settlement of restricted stock units, rather than recognizing the income in the taxable year in which the employee’s right to the stock is transferable. A key condition of the new provision is that the company must have a written plan under which at least 80% of all employees providing services to the company in the United States are granted qualified stock. Thus it is expected that the plans will more typically be adopted by start-up companies.
For 2018 and 2019, eligible employers are allowed to claim a general business tax credit equal to 12.5% of the amount of wages paid to qualifying employees during any period in which such employees are on leave under the federal Family and Medical Leave Act.
The Act also contains provisions impacting treatment of loans to employees under qualified retirement plans, contributions to individual retirement accounts (IRAs), service award limits for volunteers, and tax issues relating to various employee fringe benefits. Guidelines and regulations for the changes are still being developed, but you can expect the Act will impact your business. To determine how the Act will impact your business and employees, and what changes you must make to your business plans as well as policies and procedures, meet with your Ally Law member firm employment and tax specialists. For more information about our services in this area, contact us at firstname.lastname@example.org.