Employers have their hands full after the passage of tax reform, according to Wolters Kluwer white paper, "Tax Cuts and Jobs Act Will Present Retirement, Benefits, Executive Compensation and Payroll Professionals with New Challenges in 2018."
"While the primary focus of the act is on the personal and corporate income tax rates, and the law does not uproot pension and benefits arrangements as radically as past legislation, the new rules will present employers, employees, and tax and benefits professionals with potentially difficult decisions in the areas of retirement planning, employee benefits management, executive compensation, and payroll administration," write the authors, John W. Strzelecki, Glenn Sulzer and Tulay Turan.
The report details some of the changes demanding immediate attention, and provides advice on how employers should best proceed:
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Retirement benefit plans – the act repeals the rule permitting the recharacterization of Roth IRA conversions; provides an extended rollover period for plan loan offset amounts; furnishes relief from the early distribution penalty tax to taxpayers living in "2016 Disaster Areas;" and modifies the rules governing length of service awards under 457 plans. In addition, the act significantly modifies the pass-through deduction rules, which may potentially discourage small employers from continuing to maintain qualified plans.
Executive compensation – the act imposes an excise tax on tax-exempt organizations for excess compensation paid to designated executives; provides certain high-income qualified employees with a new option to elect to defer the inclusion of income from qualified stock transfers; modifies application of the $1 million limitation on the deductibility of executive compensation by removing the exclusion for performance based compensation; and increases the excise tax assessed on the stock compensation of insiders in expatriated corporations.
Employee benefits – the act expands the contribution options under 529 plans (including allowing for rollover contributions from ABLE accounts); suspends the income tax exclusion for bicycle commuting reimbursements; repeals the limited employer deduction for certain fringe benefits (e.g., entertainment expenses); eliminates the deduction for qualified transportation benefits; suspends the income exclusion for moving expense reimbursements; restricts the deductibility of employee achievement awards; modifies the deduction limit for luxury automobiles by increasing the applicable depreciation limits; removes computers from listed property under Code Sec. 280F; eliminates the individual mandate penalty authorized under the Affordable Care Act; and provides a temporary employer credit for paid family and medical leave.
Payroll administration – the act modifies the personal income tax rates; increases the standard deduction; suspends the currently applicable personal exemptions; suspends the moving expense deduction; and modifies the deduction for employer-provided meals.
"The broad sweep of the Tax Cuts and Jobs Act suggests its disruptive force," the authors write. "However, the true impact of the act, whether on the continued maintenance of qualified plans by small employers, the nature of executive compensation arrangements, the popularity of employer-provided fringe benefit programs, the viability of the individual health insurance market, or withholding and other aspects of payroll administration, will not be fully known until implementation of the provisions begins in earnest.
"As always, the process will be aided or hindered by regulatory guidance, possible anti-abuse measures, and probable technical corrections legislation," the authors conclude.
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Katie Kuehner-Hebert
Katie Kuehner-Hebert is a freelance writer based in Running Springs, Calif. She has more than three decades of journalism experience, with particular expertise in employee benefits and other human resource topics.
