Employer Tax Deductions Limited by New Tax Law
The Tax Cuts and Jobs Act of 2017 impacts employers in a number of ways, including the elimination certain employer tax deductions. Most notably, the new tax law eliminates deductions such as expenses paid or incurred for the following:
- Business entertainment, amusement or recreation;
- Membership dues for the benefit of the employee;
- Certain qualified transportation and commuting fringe benefits; and
- Settlement of a sexual harassment claim if the payment is subject to a nondisclosure agreement.
The Act limits employer tax deductions for costs associated with providing an employee an achievement award for tangible personal property. “Tangible personal property” excludes cash, cash equivalents, gift cards, gift coupons, gift certificates, vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and similar items.
The new law also eliminates the exemption for commission-based and performance-based pay from the one million dollar compensation cap applicable to “covered employee” of a publicly held corporation. The law also expands the definition of “covered employee” and extends the definition of “publicly held corporation.”
However, the Act does grant eligible employers a federal tax credit for paid family and medical leave provided to certain employees. It also repeals the right of an employee, who is not a member of the Armed Services on active duty, to a deduction for unreimbursed moving expenses or income exclusion for moving expenses reimbursements. The new law eliminates the right of employees under the prior law to take certain job-related, miscellaneous itemized deductions, subject to a two-percent (2%) floor, such as home office expense, union dues and expenses, work clothes, licenses and regulatory fees.
It is important to note that while the Act also repeals the individual mandate under the Affordable Care Act, the employer mandate remains in place.
Attorney Loren Speziale counsels businesses in all areas related to employment law including policies and procedures, employment agreements, benefits, and more.