The Plexus Groupe explains new fringe benefits tax law changes in the Tax Cuts and Job Act released by the IRS for employers.
The Internal Revenue Service (IRS) recently released the 2018 version of Publication 15-B, Employer’s Tax Guide to Fringe Benefits. This contains information for employers on the tax treatment of fringe benefits.
The new fringe benefits tax law, released in 2018, incorporates the new Tax Cuts and Jobs Act to the following fringe benefits:
→ Qualified transportation plans.
→ Moving expense reimbursements.
→ Employer-provided meals.
→ Employee achievement awards.
IRS Publication 15-B also discusses the new fringe benefits tax law for a variety of other benefits and includes key benefit limits for 2018.
Fringe Benefits: Tax Rules
A fringe benefit is a form of additional pay for an employee’s performance of services. Fringe benefits may include, for example, employer-provided cars, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. Fringe benefits are generally included in an employee’s gross income, unless a specific tax exclusion applies.
The Internal Revenue Code includes tax exclusion rules for certain types of fringe benefits. These include transportation benefits, meals, achievement awards, educational assistance and dependent care assistance. The new fringe benefits tax law excludes all or part of the value of certain fringe benefits from employees’ pay. In most cases, the excluded benefits are not subject to federal income or employment tax withholding, and are not reported on IRS Form W-2.
IRS Publication 15-B: An Overview
IRS Publication 15-B contains information for employers on the tax treatment of certain kinds of fringe benefits. The IRS updates Publication 15-B each year for tax law changes. The 2018 version of Publication 15-B is significant because it includes changes made by the new tax law.
Key provisions of Publication 15-B include the following:
Qualified Transportation Benefits
The new fringe benefits tax law, effective for 2018, does not allow employer deduction for qualified transportation benefits. IRS Publication 15-B clarifies that when an employer directly pays for qualified transportation benefits, through a bona fide reimbursement arrangement or through a compensation reduction agreement, their is no employer deduction. Thus, employers cannot deduct the wages that employees choose to contribute on a pre-tax basis for qualified transportation benefits.
IRS Publication 15-B does not address the unrelated business income tax (UBIT) issue for tax-exempt employers that provide transportation benefits.
While employers may no longer deduct payments for qualified transportation benefits, the fringe benefit exclusion rules still apply and employee wages may exclude deductions for qualified parking, commuter expenses and transit passes. However, the tax exclusion suspends qualified bicycle commuting reimbursements for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.
Moving Expense Reimbursements
Also, the tax exclusion suspends qualified moving expense reimbursements for tax years beginning after Dec. 1, 2017, and before Jan. 1, 2026. The exclusion is limited to members of the U.S. armed forces on active duty who move due to changing stations.
The 50% limit on food or beverage expense deductions also applies to these expenses that are excluded from employees’ income. However, food or beverage expenses related to employee recreation, such as holiday parties or annual picnics, are not subject to the 50 percent limit on deductions when made primarily for the benefit of employees, other than certain highly compensated employees.
Employee Achievement Awards
Employers may exclude the value of tangible personal property that is given to an employee as an award for either length of service or safety achievement. The new tax law clarifies that the tax exclusion does not apply to awards of cash, cash equivalents, gift cards, gift coupons or gift certificates (other than arrangements in which the employee selects from a limited array of items preselected and preapproved by the employer). The tax exclusion also does not apply to vacations, meals, lodging, tickets to theater or sporting events, stock, bonds, other securities and similar items.
Let Plexus Lend a Hand
Have questions regarding this newsletter or or other employee benefits matters? Contact a Plexus client service team representative in Deer Park, Ill. (847.307.6100), Chicago (312.606.4800), Dallas (972.770.5010), or Oklahoma City (405.840.3033). We’re here to help — and we’re happy to help.
Disclaimer and publishing credit: This Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. © 2018 Zywave, Inc. All rights reserved.