As we continue well into the second half of 2018, there is one issue that remains to be addressed with many clients I have worked with this year, fringe benefits.
It is so easy to carry on work as usual without taking the time to really analyze all aspects of the business to see what areas will be affected by the new tax law. While tax rates are at the forefront of most discussions, otherwise seemingly immaterial topics such as fringe benefits are more often than not brushed aside. Whether due to the tedious nature or the perceived immateriality of the subject matter, business owners should consult with their tax and accounting advisors to ensure they are not only in compliance with the changes, but they are approaching these changes correctly to ensure their employees will understand why internal processes need to be updated and the ultimate effect it may have on the business’s and the employee’s tax filings come year end.
One major change that most business owners do not realize is that qualified transportation benefits are no longer tax-deductible. Qualified transportation benefits are defined by the IRS as:
- A ride in a commuter highway vehicle between the employee’s home and work place.
- A transit pass.
- Qualified parking.
Per the IRS Publication 15-B (2018), no deduction is allowed for qualified transportation benefits (whether provided directly by you, through a bona fide reimbursement arrangement, or through a compensation reduction agreement) incurred or paid after December 31, 2017. No deduction is allowed for any expense incurred for providing any transportation, or any payment or reimbursement to your employee, in connection with travel between your employee’s residence and place of employment, except as necessary for ensuring the safety of your employee. Publication 15-B goes on to say that while you may no longer deduct payments for qualified transportation benefits, the fringe benefit exclusion rules still apply and the payments may be excluded from your employee’s wages.
What does this mean? While the taxability of these fringe benefits on the employee level may not have drastically changed, the deductibility of these benefits has been eliminated.
Un-reimbursed business expenses are also affected by the new tax law. In the event of an employer choosing to cease certain business expense reimbursements, they need to realize that the employee will no longer be able to claim a tax deduction for the expense, as miscellaneous itemized deductions are no longer allowed. Therefore, fringe benefits of all kinds need to be examined and any 2018 changes should be communicated to the employees so there are no surprises at year end, eliminating the potential for an increase in disgruntled employees at the workplace.
For more information, please contact our offices.
Dave Kubovsak, CPA