Let’s Talk Fringe Benefits and Tax Reform
By: Amber Beavers
Fringe benefits can be advantageous to both the employee and employer. While many know there have been changes to the tax law, there is still a lot of uncertainty on what is and isn’t deductible. We think it is important for you to know the changes, because they affect you as a taxpayer.
For purposes of tax planning in 2018, we will be discussing amounts paid or incurred after December 31, 2017. The law is scheduled to change again for tax years beginning after December 31, 2025.
Let’s break meals into 3 different sections and make it simple to understand. We have meals provided to entertain clients, meals provided to employees for business or travel and meals provided for the convenience of the employer.
- Entertaining clients – currently this is nondeductible. Under current law, meals fall under entertainment. However, once technical guidance is received from the IRS, the definition of meals could change.
- Meals provided for the convenience of the employer – meals are now only 50% deductible. These meals are usually an in-house cafeteria or otherwise on the premises of the employer. After 2025 they will be nondeductible.
- Employee business and travel – meals are still 50% deductible.
A rule of thumb is it comes down to intent. Are you entertaining clients and employees or are you having a business discussion or meeting? Documentation will be increasingly important this year. Employees are still excluded from including meals in income.
The following expenses for entertainment are nondeductible. This includes amounts paid to entertain clients.
- Activities generally considered as entertainment, amusement, charitable event or recreation.
- Membership dues for any club organized for business, pleasure, recreation or other social purposes.
- A facility used in the connection with any of the above items.
Company events for employees such as holiday parties and team-building outings are still fully deductible.
Just remember all forms of business entertainment (golf, sporting events, charity events, etc.), even if for business discussion, are likely to be nondeductible going forward. This new law was put in place to eliminate the gray area of whether such expenses are sufficiently business related.
Deductions for employee transportation fringe benefits (parking, mass transit, etc.) are nondeductible. Although, the exclusion from income for such benefits still applies to employees. Employers may still deduct those expenses incurred that are necessary to ensure the safety of the employees and business travel expenses.
- Amounts paid to employees for commuting are also nondeductible.
- Bicycle commuting reimbursements must now be included in the employee’s income.
Employee Achievement Awards
The deduction only applies to “tangible personal property”. Tangible personal property does not include cash, cash equivalents, gift cards, gift coupons, gift certificates (exceptions apply), vacations, meals, lodging, tickets for theatre or sporting events, stock, bonds or similar items, and any other non-tangible personal property.
The dollar limits remain unchanged and awards are still included in the employee’s income.
The deduction for moving expenses is now suspended for taxpayers on their personal returns.
The exclusion of qualified moving expense reimbursements is also suspended for employees. Any reimbursements must now be included in employee’s income. This does not apply to members of the Armed Forces on active duty (and their spouses and dependents) who move pursuant to a military order and incident to a permanent change of station.
However, businesses generally will still be able to deduct such reimbursements.
Unreimbursed Business Expenses
For employees, this deduction has been repealed. You can no longer deduct these work-related expenses as miscellaneous itemized deductions on your personal return. An example of these expenses would be if you normally deduct mileage on your tax return as a miscellaneous itemized deduction on Schedule A. Employers might need to reconsider paying for these expenses, as they are still deductible for them.
As you can see, there are many changes to the tax code regarding fringe benefits and luckily, summer is the perfect time for a planning session with your hb&k accountant! If you have questions about how the new tax laws impacts you, call our office at 251-928-2443 to schedule a planning visit with us.