Tax Reform Act Disrupts Fringe Benefit Planning: Here’s How to Advise Clients

Trump plan alters or eliminates: deductions for moves, transportation, meals

The Tax Cuts and Jobs Act of 2017 (TCJA) made big changes to the Internal Revenue Code (IRC)—and one key change will impact how you advise clients regarding fringe benefit planning.

A number of issues come into play when considering the options under IRC §132 fringe benefit plans, says tax pro Arthur Joseph Werner, including: automobile, disability, dependent care, medical, long-term care, education, and expense reimbursement. Werner addresses how to address these issues in his webinar for Eli Financial, “Fringe Benefit Planning after Tax Reform.” The key to knowing how to advise clients is first knowing what you are up against.

Say Goodbye to the Entertainment Expenses Deduction

Chapter 132 of the Internal Revenue Code details fringe benefits and defines “no-additional-cost service,” as well as: qualified employee discounts, qualified transportation, working condition, qualified moving expense, de minimis, and other important terminology.

The new tax reform made key changes to how fringe benefits should be handled, explains HR consultancy BLR. Four key changes affect moving expenses, transportation expenses, employer-provided meals and entertainment, and achievement awards. Here are the details:

  • The tax cut act suspends the qualified moving expense exclusion and employee deductions for moving expenses not paid for or reimbursed by the employer. Now, the amount must be reported as compensation for services and withheld.
  • The tax cut also repealed an employer’s ability to deduct transportation expenses, including transit passes, qualified parking, transportation in a commuter highway vehicle, and qualified bicycle commuting.
  • The 50-percent deduction on entertainment expenses is gone, though the 50-percent deduction for meal expenses lives on with the caveat that the restaurant be on or near the employer’s business premises.
  • Employee achievement awards live on as well, though the scope of what a reward constitutes has been narrowed.

“As employers and employees grapple with how the TCJA will affect their finances, open lines of communication are necessary to ensure a smooth transition to the new rules promulgated by the sweeping tax reform,” the BLR tip sheet notes.

Help Clients Make New Habits

Overall, both employers and employees will need to rethink long-held behaviors, warns CPA firm N.J. Grella & Associates.

“If you’ve formed certain habits related to how you handle meals, entertainment, transportation, and parking as it relates to your business and taxes, the time to change those habits has come,” the firm noted in a newsletter.

Another change to fringe benefit plans will hit churches, colleges, and other traditionally tax-exempt organizations, notes Politico. The TCJA imposed a 21-percent tax on some types of benefits that these organizations hand to employees.

Beware: “Many groups are stunned to learn of the tax, and say it will be a significant financial and administrative burden,” added Politico writer Brian Faler.

Changes brought by the Trump tax plan are complex, adds Werner—start educating yourself now to be ready when clients come asking for advice.

To join the conference or see a replay, order a DVD or transcript, or read more

Jeff Schmerker

Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.

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