Congress has delivered on a Tax Reform Bill, but not all of it is good news for employee benefits programs. In particular, Qualified Transportation Fringe Benefit Programs take a hit under the Tax Cuts and Jobs Act.
Employers Lose Deductions
Section 13304 of the Act eliminates certain business expense deductions, including all deductions for expenses that employers incur in providing any qualified transportation fringe benefits. This loss of deduction applies to amounts employers spend on van-pooling arrangements, transit pass programs, qualified parking programs and bicycle commuting programs—whether subsidizing employees’ transportation expenses or paying the administrative costs of operating these programs.
This is not necessarily a death knell for these programs. Many employers operate these programs as employee pre-tax contribution programs, where employees can pay up to a certain amount of their transportation costs with tax-free dollars, and this change in the law may not have much impact on these kinds of programs. But for employers who contribute to Qualified Transportation Fringe Benefit programs, losing the tax deduction may cause them to rethink their programs.
Employees Lose Tax-Free Bicycle Commuting Benefits
For employees, section 11045 eliminates tax-free bicycle commuting benefits. But other qualified commuting benefits—such as van-pooling, transit pass programs and qualified parking programs—will remain tax free to the employee, even if the program is funded in whole or in part by the employer. While employers who currently subsidize bicycle commuting could continue to do so, all such benefits would have to be reported as taxable income to participating employees going forward.
Changes Go Into Effect January 1, 2018
Employers will want to evaluate whether to make any changes to their programs quickly, as the tax changes will go into effect at the start of 2018. Employers who decide to make changes to their programs will need to amend or terminate their plans and promptly communicate changes to employees.
If you have any questions about the impact of the Tax Cuts and Jobs Act on your Qualified Transportation Fringe Benefit Program, or need assistance amending or terminating such a program, please contact Norbert F. Kugele, Stephanie H. Grant or any other member of the Warner Norcross & Judd Employee Benefits Practice Group.
