Tax Reform Brings Changes to Fringe Benefits that can Affect an Employer’s Bottom Line

Tax Reform Brings Changes to Fringe Benefits that can Affect an Employer’s Bottom Line

The Tax Cuts and Jobs Act impacts several programs. This includes changes to fringe benefits, which can affect an employer’s bottom line and its employees’ deductions.

We’ve decided to explain how the changes will affect employers:

Entertainment Expenses & Deduction for Meals

The new law generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. With this in mind, nightclubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, hunting, fishing, vacation and similar trips do not allow for deductions.

However, under the new law, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer or an employee of the taxpayer is present. This does not apply if the food or beverages are lavish or extravagant. In this case, the meals may be provided to a current or potential business customer, client, consultant or similar business contact. Food and beverages that are purchased or consumed during entertainment events will not be considered entertainment if either of these apply:

• they are purchased separately from the entertainment
• the cost is stated separately from the entertainment on one or more bills, invoices or receipts

Qualified Transportation

The new law also disallows deductions for expenses associated with qualified transportation fringe benefits or expenses from providing transportation for commuting. There is an exception when the transportation expenses are necessary for employee safety.

Bicycle Commuting Reimbursements

Moreover, employers can deduct qualified bicycle commuting reimbursements as a business expense. Employers must also include qualified bicycle commuting reimbursements in the employee’s wages.

Qualified Moving Expenses Reimbursements

Employers must now include moving expense reimbursements in employees’ wages. The new tax law suspends the exclusion for qualified moving expense reimbursements.

Exception: members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income. However, they must meet certain requirements to do this.

Employee Achievement Award

Special rules allow an employee to exclude achievement awards from their wages if the awards are tangible personal property. An employer also may deduct awards that are tangible personal property, subject to certain deduction limits. Also, the new law clarifies the definition of tangible personal property.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
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