In December 2017, federal legislators signed a sweeping new tax bill into law. The tax bill presents the most significant changes to the national tax system the country has seen in three decades. The new tax bill will affect almost all businesses, employers, employees, and households. It gives new tax credits related to the federal leave acts, repeals parts of the Affordable Care Act, and eliminates a few employee tax benefits.
While tax experts are still trying to figure out exactly how the new law will affect employees, here’s what they know so far.
Many employees might notice wage increases or bonuses since the announcement of the passing of the bill. This is because many employers enjoyed serious tax breaks they wanted to share with workers. Many small and large companies have jumped on the bandwagon, offering employee incentives and rewards thanks to the extra bit of income they saved because of the tax reform. Lower individual tax rates could also contribute to employees noticing pay increases. Paychecks will reflect the new tax rates as soon as employers can implement the new tax brackets.
Employers can now earn tax credits when they pay employees that use leave under the Family and Medical Leave Act (FMLA). The FMLA lets employees take up to 12 weeks of unpaid leave for medical reasons and for family members’ medical issues per year, without fear of job termination or punishment. Eligible employees can take off up to 12 weeks for the birth of a child, placement of a child for adoption or foster care, to care for a spouse with a serious medical condition, or because of the employees’ medical condition.
Under the new tax bill, the Internal Revenue Service (IRS) will reward employers for paying their employees to take leave under the FMLA. Starting in the tax year 2018, employers can get back 12.5% to 25% of wages they give to employees who take leave under the FMLA. If an employer offers wages at 50% or more the employee’s normal wage, the employer can claim a 12.5% tax credit. If they pay full wages, they can claim up to 25%. This is good news for employees, as it could mean more employers offering paid medical leave.
One piece of bad news for employers and employees is the elimination of business tax deductions for employee commutes and parking. Prior to the passing of the bill, employees could receive an employer subsidy to pay for commutes, transit, and parking expenses. While employees can still use pre-tax dollars to pay for these expenses, employers will no longer receive deductions for their contributions. This could discourage some employers from offering this type of benefit to employees. Also, employees that bike to work will no longer receive a tax-free $20 monthly limit from employers for costs.
From now on, employee achievement awards such as bonuses, gift cards, or cash will no longer qualify as deductions for employers. The new law defines “tangible personal property” a company can deduct as items such as T-shirts or mousepads. Cash or cash equivalents are now taxable. Employees cannot exclude them from income, and employers cannot list them as deductibles. The new law also suspends the tax-free status of employer-paid moving expenses until 2025. Until then, the IRS will consider employer payments for employee relocation income, and tax it as income. There is an exception for active-duty members of the military.
If you rolled over a 401(k) balance to an IRA or some other plan, you will no longer have such a tight deadline to pay the loan balance. Now, instead of having to pay taxes on your loan balance within 60 days, you will have until your tax due date the following year. This can help employees who are between jobs and cannot repay 401(k) loans.
The Tampa employee attorneys at Florin Gray Bouzas Owens, LLC can help you understand if you have been a victim of wage and hour matters at work.
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