Volume 8 | Issue 41
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As they say, “It ain’t over ‘til it’s over.” Yes, we have a House bill, and yes, we have a Senate bill, and yes, lawmakers will go to conference to hammer out the differences. But we also have posturing about withholding votes if favorite terms are dropped. Between the tax bill and the December 8 deadline for a government shutdown, there’s plenty to watch besides annual holiday TV specials.
Tax Reform Progress and Potential Impact on Employee Benefits
Marking up House language from H.R. 1 nailed down weeks earlier (see our November 15 issue of Legislate), the Senate passed a tax reform bill last week. Having diverted from the original House text, this week the chambers begin work on reconciling the two bills to produce the final tax reform bill they hope to have on President Trump’s desk by Christmas. Although the main issues the committee will need to sort out involve the individual tax rates, alternative minimum tax, the timing of the corporate tax rate change, and the estate tax, there are a few remaining employee benefit issues that could see changes in the final bill. Here’s a rundown on those issues in the two bills (text for both versions of H.R. 1 can be found here):
| House Bill | Senate Bill | |
| Retirement Plans | ||
| Retirement plan loan repayment | Would add extra time for terminated employees to complete rollover | Same |
| Six-month contribution waiting period after hardship distribution | Eliminated | No provision |
| Earnings and employer contributions available for hardship distribution | Added | Same |
| Loans required before hardship distribution | Eliminated | Same |
| In-service withdrawals | Defined benefit and governmental 457(b) plans permitted to allow in-service withdrawals from age 59½ | No provision |
| Closed defined benefit plans | Relaxed nondiscrimination, coverage and minimum participation rules | No provision |
| 2016 disaster area tax relief | No provision | Would allow relief from 10% early distribution penalty, provide 3-year ratable income inclusion, and permit repayments for distributions before 2018 by individuals in presidentially declared disaster areas with disaster loss |
| Welfare and Fringe Benefits | ||
| Dependent care assistance programs (DCAPS) | Eliminates employer-provided dependent care assistance as of January 1, 2023 | No provision |
| Employer-provided child care credit (i.e., where employer owns, operates or contracts with a day care facility) | Repealed | No provision |
| Employer tax credit for paid family and medical leave | No provision | Provides employers with a business credit for 12.5% to 25% of the wages paid to qualifying employees on paid family and medical leave |
| Qualified transportation fringe benefits | Eliminates the employer deduction (e.g., business expense) for qualified transportation fringe benefits; (exclusion from employee gross income for qualified transportation benefits – under Section 132 – remains) | Similar to House bill; provides exception as necessary for ensuring the safety of an employee; suspends exclusion for qualified bicycle commuting expenses from January 1, 2018 to December 31, 2025 |
| Employer-provided education assistance | Repeals tax exclusion | No provision |
| Employer-provided housing exclusion | Limits employer exclusion to $50,000 ($25,000 for married individuals filing separately) and one residence (i.e., where the housing is for the employer’s convenience) | No provision |
| Employee achievement awards | Repeals tax exclusion | Tax exclusion eliminated if paid in cash, tickets, meals, lodging and certain other awards; not eliminated for certain other tangible property |
| Qualified moving expense reimbursements | Repeals tax exclusion | Suspends exclusion for tax years beginning after 2017 and before 2026 (except for active duty military) |
| Adoption assistance programs | Repeals tax exclusion | No provision |
| Executive Compensation | ||
| Excise tax on tax exempt organization executive compensation | Imposes 20% excise tax on organization for:
|
Same as House bill |
| Section 162(m) limit on deduction for employee compensation | Repeals exceptions for performance-based compensation and commissions from $1 million yearly deduction limit | Similar to House bill but changes to Section 162(m) would not apply to a written binding contract in effect on November 2, 2017 that is not materially modified thereafter |
| Health Plans | ||
| ACA’s individual mandate | No provision | Nullifies (zeroes out) individual mandate penalty for months beginning after December 31, 2018 |
Tax Bills’ Indirect Effects
In addition to the direct effect on a benefit plan due to elimination or changes in features, other changes in the bills can have an indirect effect by changing the tax cost of an item. For example, lower corporate or pass-through tax rates will change the value of an employer’s deduction of contributions to retirement or other benefit plans; the elimination of the medical expense deduction makes employer-provided health plan coverage more valuable.
Budget Deadline
Ongoing funding for government operations is the second financial issue of concern for Congress this week. The current continuing resolution, or CR, is set to expire on Friday, December 8, leaving the government to shut down if an extension or final omnibus funding bill is not nailed down. Some believe that there will be multiple CRs as political chips for use on other goals.
Looking Ahead
We expect Congress will turn to preventing a government shutdown this week and then double down to iron out tax reform differences before leaving for the holidays.