If companies want to remain competitive and attract talent, they need to offer both good salaries and good benefits too. In the US, where healthcare isn’t free and living costs are on the rise, employee benefits are increasingly attractive to young new hopefuls. Alas, despite the best intentions of employers to provide their workers with benefits, changing tax laws are making it difficult for some HR departments to adapt or find the funds for employee benefits.
So how exactly have employee benefits been affected by tax reform in 2018? Let’s take a look at some examples!
Employers cannot claim deductions for qualified transportation fringe benefits anymore, and this includes commuting. Employer deductions are now completely prohibited, apart from when they are essential to the security of their employees. For employers, this means that they could look into sponsor transportation plans which are paid on a pre-tax model. In general, however, businesses will be forced to closely examine their expenses and restructure some logistical systems in order to reduce their tax liability.
Bicycle reimbursements are not tax-free anymore under the new reform. Under the new system, employees who cycle to work are no longer protected from the tax man. This is sad news for cycling enthusiasts, who are good for both the sustainable energy crisis and the national obesity crisis.
Engagement activity deductions
As of 2018, employer deductions for granular-level engagement activities are no longer allowed. This means that engagement activities for low-level employees will become more pricey, necessitating enhanced support and planning in order to offset the increased costs.
Food, beverages, and meals
Employers are only able to partially deduct expenses spent on drinks, food, and meal options for their workforce, meaning that costs are likely to rise for employees. Under the 2018 tax reform, only 50% of food and drink costs can be deducted, and this includes costs arising from things such as on-site cafeterias.
Recognitions and rewards
There is now a line drawn between cash and non-cash rewards, with deductions for employers only being limited to tangible property such as a gift voucher for a computer store or something similar. This means that any rewards given to employees which are not “tangible property” will no longer be deductible, leaving employers and employees alike with increased tax bills. Non-tangible rewards are things such as cash, coupons, vacations, hotels, meals, and event tickets. This could cause employers to become less enthusiastic about certain types of employee rewards.
Paid medical leave and family leave
According to the new regulations, employers offering at least 2 weeks of annual paid medical and family leave will now receive a tax credit for doing so. This applies to their full-time employees who qualify for the leave, and the paid leave must ensure that the employee at hand receives a minimum of 50% of their normal salary. This is great for mid-level employees, who are very likely to qualify for such benefits according to guidelines. Employers who give out these benefits can claim 12.5% of the paid leave as tax credits, with that figure increasing by 0.25% for every 1% of salary that the employer pays over the 50% minimum.
The bottom line
This recent tax reform certainly has its pros and cons depending on who you ask. Although a bunch of employer tax deductions have been reigned in, there are now tax credits which inadvertently boost employee morale and aim to help companies retain funds in the form of tax credits. In addition, although some employees may enjoy non-tangible rewards from their employer, this new focus on tangible rewards is likely to mitigate the risk of fraud and disappointment going forward.
Of course, these reforms will trickle their way into companies very differently, but any company worth its salt will be able to adapt and ensure that the most crucial employee benefits will continue to be offered despite changes in the tax structure.
Are you an employer who’s looking to adapt your benefits system to work in tandem with the latest tax regulations? Speak to a member of our helpful team today for bespoke advice!