How are employers structuring their benefits and maintaining a competitive edge in recruiting/retaining talent after the 2017 tax law cut many of the deductions and income exclusions previously covered? Gray Hutchison spoke with Bloomberg Tax‘s Lydia O’Neal about the impact on fringe benefits under the new tax law. From the article:
Companies probably won’t scrap all the employee perks that have lost their tax breaks under the new tax law, but instead will take a hard look at how they shape their benefits packages.
The 2017 tax law slashed myriad reimbursement program deductions and income exclusions for employee commuting costs, entertainment expenses, various food and beverage expenditures, the cost of relocating, and certain awards for employee achievement.
By effectively making those benefits more expensive, the 2017 tax act’s adjustments may drive employers to allocate a larger portion of funds set aside for employee-related expenses to other benefits, such as health care, retirement, or student loan help, as a way to make their perks more tax-efficient, human resources and tax professionals told Bloomberg Tax. . . .
‘What’s This Going to Look Like?’
Aside from local ordinances mandating the provision of transit benefits, many companies will likely keep their now nondeductible perks in place simply because it would amount to “bad optics,” said Gray Hutchison, benefits and compensation practice group leader at the Raleigh, N.C.-based law firm Wyrick Robbins Yates & Ponton LLP.
In light of the daily news of big corporate bonuses, 401(k) contributions, and higher profits as a result of tax reform, a bit of stinginess would appear not only hypocritical, but illogical, as the fringe benefit deductions are less valuable under the lower corporate tax rate, and the new fringe benefit tax liabilities should be more than offset by the benefit of the drop in the rate, he noted.
“What’s this going to look like?” Hutchison said. “We’re getting a big tax break, and all of a sudden, we’re taking something away from employees just because we don’t get a deduction for it?”
SHRM’s [Chatrane] Birbal said employees also are likely to be irritated if their employers took away benefits that have been in place for years. “Once the toothpaste is out of the tube, it’s really hard to put it back in,” she said. “So if you’re an employer and you are offering these benefits to your employees, it would behoove you to keep or maintain the majority of these benefits to maintain your competitive edge.”
Read the full article here.