What does the “Tax Cuts and Job Act” mean for fringe benefits in 2018? This new tax plan could change everything. here’s what you need to know.
Kyle Asman was excited to offer commuter benefits to his small team when he launched his new company in January. And it was little surprise that 10 out of the 15 employees at Bx3 Capital, a financial advisory firm, took advantage of the perk. The company is in New York City, after all, a land of traffic headaches, packed commuter trains, and subways.
Then, along came The Tax Cuts and Jobs Act, signed by President Donald J. Trump in December 2017. Now because of this new tax plan, employers like Asman would no longer be able to deduct “qualified transportation fringe benefits” from their corporate taxes. These perks, often provided by employers to employees to lessen the financial burden of getting to work, covered things like bus passes, train tickets, some qualified parking costs, and bicycle commuting costs.
Employees often eat up these perks, and employers like being able to deduct the cost of these benefits from their taxes. With that no longer the law of the land, the question arose of whether employers will cut commuter benefits from their roster of perks.
But if Asman is any indication, most employers won’t be pulling commuter benefits from their perks anytime soon. That’s because the new tax plan ushered in a lower corporate tax rate. “The lower rate ultimately offsets the difference,” Asman says. “At the end of the day, the employer is ending up virtually in the same spot, while the employees can still receive their commuter benefit.”
Under the new tax plan, employers can still provide these benefits tax-free, but if they do so, their costs are not tax deductible.
Under the new tax plan, employers can still provide these benefits tax-free, but if they do so, their costs are not tax deductible. If employers provide qualified transportation fringe benefits and still want to get the deduction, these benefits must be included on an employee’s paycheck as taxable wages.
Previously employers could also get a tax deduction for reimbursing bicycle commuting expenses. Companies could provide a benefit of up to $20 a month to cover expenses such as helmets, locks, lights or maintenance, including new tires. After the new tax plan, employers can still deduct these benefits under the new law, but they must be included in employees’ wages. Organizations of cycling supporters, such as PeopleforBikes, and the League of American Bicyclists, protested the change in the tax law, but ultimately they did not prevail.
CPA Paul Gevertzman, a tax partner at Anchin, Block & Anchin LLP in New York City, hasn’t witnessed a big impact from the overall change in reimbursement for employees’ transportation among his clients so far.
One factor, he notes, is that companies above a certain size have an obligation to provide commuter benefits. In New York City, companies and nonprofits with 20 or more employees are required by law to offer full-time employees the opportunity to purchase qualified transportation fringe benefits using pre-tax income.
“I haven’t seen too many companies say they were going to cut out transit benefits, he says, though he adds, “I hear a lot of complaints about the fact they can’t deduct it.”
At Dialogue Theory, a four-person company in Brooklyn, N.Y., that does web development and user experience design, co-founder and director of user experience Chris Oquist said the firm plans to keep the bicycle benefit. The benefit was covering a subscription to the bike sharing service Citi Bike. Dialogue Theory had been getting the subscription for $100, a discount over the normal $170 rate, and three of the four team members were using the benefit, he says.
“We really don’t have the resources to provide a hugely competitive benefits package yet,” explains Oquist. “Our strategy has been to provide benefits that give folks a big impact without hitting us too hard. Citibike is one of those.”