Recent changes from the Tax Cuts and Jobs Act taking effect this year have created tough decisions for small and medium sized businesses. Differences in business deductions mean business owners may want to reevaluate the benefits they offer employees.
With help from an IRS resource, we’ve broken down the major changes likely to have the biggest impact on business costs, recruitment efforts, and employees. While we don’t offer tax advice, we do provide highlights HR departments and business owners should follow.
Paid Family and Medical Leave Credit
A new tax credit is available for businesses who want to increase or begin a paid family and medical leave policy for their employees. Paid family and medical leave benefits offer employees peace of mind that their job will be safe in case of an emergency that causes them to miss work. This goes beyond what is required under federal law, which only guarantees unpaid leave to employees. Now, there’s a tax credit for employers when they offer at least 50-percent paid family and medical leave to employees. This is a win-win for employers and employees. Employers are eligible for a tax credit, and employees can keep their job, and collect some pay, should a family or medical emergency arise.
To qualify, the business’s leave policy must meet certain criteria including offering at least two weeks paid family and medical leave annually for full-time employees.
Additionally, the credit can be applied retroactively in certain circumstances for businesses that offered a qualifying program prior to 2019.
Fewer Deductions for Commuter, Moving Expenses
Previously, employers were able to pay for some employee transportation and commuter expenses and deduct the cost from the business. The new change means that is no longer allowable. Businesses won’t be able to deduct commuter transportation expenses, such as parking or bike-sharing for their employees. Now business owners must decide whether to keep these benefits without the ancillary deduction or support their workforce transportation needs in another way, if at all.
For employees, moving and relocation benefits can no longer be offered as a tax-free benefit and must now be included in their annual income. Previously, employers could offer moving and relocation packages as a tax-free incentive for employees. Now, this benefit must be counted in the employee’s taxable income. Employers need to consider if there is a different way to help employees with relocation or if they want to offer different benefits, such as telecommuting, as an alternative.
Employee Bonus Changes
Under the new law, there’s a change in filing for businesses when it comes to certain employee awards. In the past, employee bonuses and awards could come in the form of cash, gift cards or travel and were considered tax deductible expenses for businesses. While many are still deductible for them, the change specifically affects benefits offered in the form of cash or gift cards.
Previously, you could give employees gift cards for being selected as employee of the month, for example. Businesses could deduct the cost of that gift card as a qualified business expense. This type of deduction will no longer be allowed for business owners who choose to offer awards like gift cards or cash for their employees.
These are just three of the many changes the new law brings about. Employers need to weigh the cost of these benefits and their value to employees over the expense to the business. As with any employee business decision, each case is unique.
How will these changes impact your profits and your ability to keep your top employees?
When in doubt, consult an expert to learn best practices and advice to retain the best and brightest talent for your workforce.
DISCLAIMER: Our firm provides the information in this blog for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.