Employee benefits can be complex and tedious to administer, especially when it comes to taxation. Even if you’re not a CPA, it’s important to understand tax implications both at the employer and employee level. Let’s look in detail at employee benefits tax implications for employers along with new benefits considerations following passage of the Tax Cuts and Jobs Act in late 2017.
Employer Tax Implications
Employers are usually able to deduct amounts they spend on employee benefits as a trade or business expense when filing taxes. To be deductible as a trade or business expense, it must meet the following criteria:
It is also important to consider that for noncash benefits the employer may deduct only the cost of the benefits (though the value of that benefit must be included in the employee’s gross income).
2018 Tax Changes to Fringe Benefits
The IRS recently released the 2018 version of Publication 15-B – Employer’s Tax Guide to Fringe Benefits. This document contains information on the tax treatment of fringe benefits. It’s important to review this version due to changes incorporated by the Tax Cuts and Jobs Act including, but not limited to:
In addition to changes, new tax limits on benefits are also outlined in Publication 15-B. See the table below for Key Fringe Benefit Limits for 2018.
New Employer Tax Credit for Paid Family and Medical Leave
The Tax Cuts and Jobs Act created a new business tax for eligible employers that provide paid family and medical leave to their employees. The tax credit is equal to a percentage of wages paid to qualifying employees who are on family and medical leave and will apply to taxable years beginning in 2018 and 2019. The percentage amount starts at 12.5% and is capped at 25%.
How to Take Advantage of Paid Leave Tax Credit | SHRM
To be eligible for this credit, an employer must have a written policy in place the provides at least two weeks of paid family and medical leave at a payment rate that is at least 50% of an employee’s normal pay rate.
The tax credit will only apply to leave that is taken for a reason permitted under the Family and Medical Leave Act (FMLA). Paid leave that is provided as vacation, personal or sick leave is not taken into consideration.
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For help with these and other employee benefits tax implications, contact the experts at Austin Benefits Group.