G&A Partners has previously written about how the new tax law has affected employee payroll deductions and delayed the IRS’ publishing of the new 2018 Form W-4, but now we also wanted to update you several other elements of this new law as they relate to HR compliance, including:
The new law contains a provision that prohibits deductions for settlements or payments related to sexual harassment or abuse if the payment is subject to a non-disclosure agreement. In addition, no tax deduction shall be allowed for any attorney’s fees related to such a settlement or payment.
Basically, this new provision presents a choice between non-disclosure of the sexual harassment versus being able to take a tax deduction for a settlement related to “sexual harassment or sexual abuse.”
The new law amended the section of the Internal Revenue Code (IRC) relating to executive compensation (Section 162(m)) to:
The elimination of the performance-based exception means that companies will now have more flexibility in the design of their incentive compensation arrangements because they will not be bound by former prescriptive requirements of Section 162(m).
In general, the rules for taxation of employee equity incentive awards remain substantially intact after the new law was passed. There are two tweaks to the general rules, however:
The new law disallows an employer’s deduction for expenses associated with providing any qualified transportation fringe or commuter benefits to employees, except as necessary for ensuring the safety of an employee. The law does not modify the tax treatment for employees who receive employer-provided qualified transportation fringes.
The new law generally suspends the deduction for employee expenses and generally suspends the exclusion from gross income for qualified moving expense payments and reimbursements. Note that this particular provision sunsets on December 31, 2025.
Commencing in 2019, the new law eliminates the tax penalty under the Affordable Care Act’s individual mandate. However, the employer shared responsibility rules remain in place. This means that employers must still offer health coverage or they will incur an excise penalty. Further, employers will still be required to prepare, distribute and file Forms 1094-C and 1095-C.
Under the new law, there is also a provision that provides a tax credit for companies if they provide paid family and medical leave for lower-wage workers. This is available to companies that offer at least two weeks of paid family or medical leave annually to workers, as long as two key criteria are met:
If the employer meets these two criteria, it will receive a tax credit equal to 12.5% of the amount it pays to the worker. The tax credit increases on a sliding scale if the company pays more than 50% of wages, up to a maximum credit of 25% of the amount the employer paid for up to 12 weeks of leave.
This new program is designed to test whether this approach works and will expire after 2019.
Please note that this is not related to leave as regulated by the federal Family and Medical Leave Act (FMLA). Unlike leave provided under the FMLA, any company may qualify for this tax credit as long as they meet the two criteria.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as tax advice. Readers should consult their tax accountant or a certified tax professional for tax advice.