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New Tax Law Repeals Individual Mandate, Eliminates Tax Breaks for Several Fringe Benefits

President Trump has signed into law the Tax Cuts and Jobs Act, which, among other things, effectively repeals the Affordable Care Act’s individual mandate beginning in 2019, eliminates tax breaks for several fringe benefits, and creates a new tax credit for employers offering paid family and medical leave.Individual Mandate Repeal Effective in 2019
Under the Affordable Care Act, individuals are currently required to have minimum essential health coverage, qualify for an exemption from the requirement, or pay a penalty tax. This ACA provision is known as the “individual mandate.” Effective in 2019, the individual mandate is effectively repealed, as the penalty tax for noncompliance with the mandate will be reduced to $0.

Tax Breaks for Several Fringe Benefits Eliminated
Effective in 2018, the tax treatment of certain fringe benefits will be impacted as follows:

  • Employer contributions to an employee’s qualified transportation fringe benefits (including those for employees’ transit passes and parking) will no longer be deductible from the employer’s gross income.
  • Qualified moving expense reimbursements made by an employer will generally no longer be excludable from an employee’s gross income.
  • Qualified bicycle commuting reimbursements made by an employer will no longer be excludable from an employee’s gross income.
New Employer Tax Credit for Paid Family and Medical Leave
For tax years 2018 and 2019, employers that offer paid family and medical leave (as defined under the federal Family and Medical Leave Act [FMLA]) to employees may qualify for a newly established tax credit of up to 25% of the annual wages paid to those employees.To learn more about the tax consequences of various employer-provided benefits, visit our Employee Benefits section.

Matt Hollister No Comments

IRS to Begin Mailing ‘Pay or Play’ Penalty Letters

The IRS has announced that it will begin mailing employers letters informing them of their potential liability for a “pay or play” penalty for the 2015 calendar year in late 2017. However, before any penalty is assessed and notice and demand for payment is made, employers will have an opportunity to respond to the agency.

What Will the Letter Contain?
The IRS plans to issue Letter 226J to applicable large employers (ALEs)—generally those with at least 50 full-time employees, including full-time equivalent employees, on average during the prior year—if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee). Letter 226J will include, among other things:

  • A penalty payment summary table, itemizing the proposed payment by month;
  • An “employee premium tax credit list” which lists, by month, the ALE’s employees who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief;
  • A description of the actions the ALE should take if it agrees or disagrees with the proposed penalty payment; and
  • A response form.

The response to Letter 226J will be due by the response date shown on the letter, which generally will be 30 days from the date of Letter 226J. Letter 226J will also contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.

How Does an ALE Make a Pay or Play Penalty Payment?
If, after correspondence between the ALE and the IRS, the IRS determines that an ALE is liable for a penalty payment, the IRS will assess the payment and issue a notice and demand for payment, Notice CP 220J. That notice will instruct the ALE on how to make a payment, if any. Notably, an ALE will not be required to include a payment on any tax return that it files or make a payment before notice and demand for payment.

Click here for more information from the IRS.

Visit our “Pay or Play” (Employer Shared Responsibility) section for more on pay or play compliance.