Tax Reform Adds Paid Family Leave Credit, Changes Qualified Transportation Fringe Benefits

January 02, 2018

The Tax Cuts and Jobs Act includes several provisions that impact employee benefits plans, such as a new employer credit for paid family and medical leave. Also under the law, employers can no longer deduct expenses for qualified transportation fringe benefits, effective for tax years beginning after December 31, 2017.

Paid family leave credit. The provision allows employers to claim a general business credit equal to 12.5 percent of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave if the rate of payment under the program is 50 percent of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25 percent) for each percentage point by which the rate of payment exceeds 50 percent. The provision is effective for wages paid in taxable years beginning after December 31, 2017, and would not apply to wages paid in taxable years beginning after December 31, 2019.

Transportation fringe benefits. Under the new law, employers can no longer deduct expenses for qualified transportation fringe benefits. This provision is effective for tax years beginning after December 31, 2017. In addition, qualified bicycle commuting expenses will no longer be tax exempt to employers, effective for tax years beginning after December 31, 2017.

Moving expenses reimbursement. Previously, qualified moving expense reimbursements provided by an employer to an employee were excluded from the employee’s income. Under the new law, the exclusion for qualified moving expense reimbursements is repealed (except in the case of a member of the Armed Forces of the U.S. on active duty, who moves pursuant to a military order), effective for tax years beginning after December 31, 2017.

Elimination of shared responsibility payment. Under the Patient Protection and Affordable Care Act, individuals must be covered by a health plan that provides at least minimum essential coverage or be subject to a tax for failure to maintain the coverage (also known as the individual mandate). The new law reduces the amount of the individual responsibility payment to zero, effective for months beginning after December 31, 2018.