President Donald Trump signed into law the Tax Cuts and Jobs Act on December 22, 2017. This piece of legislation is broad in scope and will affect almost every individual and business, including PCA churches and church related organizations.
While the act is broad, the review below is limited to changes to select employee benefits within the Act. We are listing a brief review of the changes to certain employee benefits. This review is not intended to be a complete listing of all employee benefit changes or a comprehensive discussion of the changes.
If you require expert assistance in determining how the Tax Cuts and Jobs Act will affect your ministry, the services of a competent professional should be sought. If you want to find out more information about the Tax Cuts and Jobs Act, there are a number of law firms that have produced a review. Contact us if you need assistance in finding a good review.
529 Account Funding
Beginning in January 1, 2018, a definition of higher education expenses now includes eligible expenses up to $10,000 per year for tuition at an elementary or secondary public, private or religious school. In the past it was limited to accredited public or private colleges or universities.
Rollovers from ABLE account
Distributions from 529 plans can now be rolled over to an ABLE account (i.e. a tax advantaged savings account for disabled individuals) without penalty. The ABLE account must be owned by the designated beneficiary of the 529 plan or a member of the beneficiary’s family. This provision becomes effective after December 22, 2017.
Suspension of Exclusion for Qualified Bicycle Commuting Reimbursement
Under former law, employees could exclude qualified bicycle commuting expenses from their taxable income. The new law eliminates the exclusion after December 31, 2017.
Treatment of Transportation Benefits
After December 31, 2017, employers cannot deduct the expense of any qualified transportation fringe benefit (e.g. transit passes provided by an employer, van pooling, bicycle commuting reimbursement, and parking) provided to an employee. In addition, the employer cannot deduct any expense incurred for providing any transportation (payment or reimbursement) to an employee in connection with travel between the employee’s home and the office, in most cases. Employers will not only lose the deductions, but will have to pay FICA taxes on the value of the benefit.
One aspect of Treatment of Transportation Benefits is troubling and many churches and church-related organizations are unaware of this provision and its implications. Ministries will now be subject to unrelated business income tax on the cost of parking provided to its employees. This tax applies to all organizations that provide parking for their employees, whether the employee is charged for parking or not. Many churches and church-related organizations will now be required to file a Form 990-T and some may also need to file state income tax returns and possibly pay state income tax. There is a growing effort to rescind this tax but no action has been taken as of mid-July.
Suspension of exclusion for moving expenses reimbursement
After December 31, 2017, most employees will lose an important exclusion; the ability to exclude qualified moving expenses from gross income. This means the value of moving expenses paid by employers will be treated as taxable income.
Limit Deduction on Employee Meals
After December 31, 2018, the 50% limit on deductions for food or beverage expenses also applies to food or beverage expenses that are excludable from employees’ income as a de minimis fringe benefit. However, food or beverage expenses at holiday parties (e.g. employee recreation) are not subject to the 50% limit on deductions.
Limited Exclusion on Employee Achievement Awards
Employers may exclude the value of tangible personal property that is given to an employee as an award for either length of service or safety achievement. After December 31, 2017, employers may not claim a tax exclusion for awards of cash or cash equivalents (e.g. gift card, etc.). In addition, employers may not claim an exclusion for vacations, meals, lodging, tickets to events, securities and similar items.
Removal of Computer Equipment from Listed Property
Computers and peripheral equipment owned by an employer and used at home, were treated as listed property before January 1, 2017. As such, the fair market value of an employee’s personal use of that computer was treated as a taxable fringe benefit. The Act removes computers from the definition of listed property and computers are no longer subject to stringent substantiation requirements.
Elimination of Individual Mandate Penalty
After December 31, 2018, the Act will repeal the individual Mandate of the Affordable Care Act. The individual mandate requires most US citizens to obtain and maintain medical insurance or pay a tax penalty. That penalty, while still present, is technically reduced to zero.
Employer Credit for Paid Family and Medical Leave
A new employer credit is available in 2018 and 2019 for paid family and medical leave. The Act affords businesses to claim a business credit equal to 12.5% or more of the wages paid to an employee, out on paid family and medical leave, subject to certain provisions.
*Wolters Kluwer December 29, 2017 White Paper – Tax Cuts and Jobs Will Present Retirement, Benefits, Executive Compensation and Payroll Professionals with New Challenges in 2018. 24 pages.
Geneva Benefits Group serves those who serve others, providing practical support for the financial, physical, and mental wellbeing of people who work in full-time ministry.