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Tax Reform — What you need to know about pre-tax and fringe benefits

Tax reform and your pre-tax benefits

If you watch, read or listen to any type of news, you know that the House unveiled its tax reform bill. However, pre-tax accounts and fringe benefits are not one of the highly covered components of the bill you likely heard about. Currently, the Ways and Means Committee is working on mark-ups. Additionally, the Senate is preparing to release its companion version in the coming week(s). However, let’s start with a few things to note based on The Tax Cuts and Jobs Act (H.R.1) released on Thursday, Nov. 2, 2017

What appears to have made the first round?

Employer-provided health benefits: No change proposed to the tax treatment of employer-provided health care benefits.

Pre-tax transportation benefits: Although there was early speculation that pre-tax transportation benefits might be affected by the tax reform bill, these benefits are currently being preserved. There is, however, a provision that would prohibit employers from taking a business deduction for employer contributions to transportation fringe benefit accounts.

Health Savings Accounts: No change proposed under the tax reform bill. However, the Healthcare Market Certainty and Mandate Relief Act (H.R.4200/S.2052) was released on Nov. 1, 2017. If passed, it would increase HSA contributions limits to the out-of-pocket maximums imposed by the Affordable Care Act.

What appears to be at risk?

Dependent Care FSA: Under the proposed bill, dependent care FSAs will no longer be tax exempt; therefore, no longer permitted. Initial amendments suggest this provision would be delayed until 2023.

Adoption Assistance Programs: Updated 11/9/17. While the initial bill text would have repealed the exclusion for adoption assistance and become taxable to employees’ income, a last minute amendment by Rep. Brady sought to maintain this benefit.

Employer-provided education assistance: The exclusion for education assistance programs would be repealed and become taxable to employees’ income.

Archer Medical Savings Accounts: If you are one of the remaining hold-outs with an Archer MSA, you may receive the final nudge to convert to an HSA. Deductions for MSAs will no longer be permitted under the proposed bill.

Stay tuned! 

Political advisors suggest the tax reform bill may be on the fast track through the legislative process. Initial mark-ups from the Ways and Means Committee are in progress. We are likely to see Amendments in the coming days, along with a companion bill from the Senate. We are closely monitoring the progress of this bill and will provide updates as they become available.

 


The above topic is intended to provide an overview of the potential impact to pre-tax and fringe benefits based on The Tax Cut and Jobs Act (H.R.1) as proposed on Nov. 2, 2017. This is an evolving situation and should not be construed as legal fact or certainty.