Tax reform brings changes to fringe benefits that can affect an employer’s bottom line

Several programs have been affected because of the Tax Cuts and Jobs Act passed last year. This includes changes to fringe benefits, which can affect an employer's bottom line and its employees' deductions.

Here’s information about some of these changes that 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. 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, and the food or beverages are not considered lavish or extravagant. 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

TCJA repealed most meals and entertainment deductions for years beginning after 12/31/2017. See the below table. IRS Reg. 1.274-2(b)(1) defines entertainment as “The term entertainment may include an activity … such as providing food and beverages” The word “may” is not indicative that business meals are mandatorily part of entertainment. The word “must” would be such an indication.

Qualified Transportation

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

Bicycle Commuting Reimbursements

Under the new law, employers can deduct qualified bicycle commuting reimbursements as a business expense. The new tax law suspends the exclusion of qualified bicycle commuting reimbursements from an employee’s income. This means that employers must now include these 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.

There is one exception as members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if they meet certain requirements.

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. The new law clarifies the definition of tangible personal property.

If you would like to discuss how these affects your particular situation, and any planning moves you should consider in light of them, please give me a call.

Meals & Entertainment                                                                                             2018 What’s New 

Type of Expense	Old Rules Before 2018	New Rules After 2017 through 2025	Reference & Comments
Business Entertainment	50% Deductible	No Deduction	IRC Section 274
Sky boxes	50% Deductible with limits	No Deduction
Sporting/Theatre Tickets	50% Deductible with limits	No Deduction
Other entertainment, amusement or recreation expenses	50% Deductible with limits	No Deduction	Golf, lodges, trips, resorts, etc.
Business Meals where business is discussed during or immediately before or after the meal	50% Deductible as long as not lavish or extravagant and taxpayer or employee of taxpayer is present	**No Deduction	**We believe that until   Congress   or the IRS clears this up that these meals would be included as entertainment.
Business Meals at, before, or after an entertainment event such     as     dinner before a theatre	50% Deductible as long as not lavish, and taxpayer or employee of taxpayer is present	No Deduction	We believe the elimination   of   the deduction is clear, but the definition of an entertainment event is not.
Company Picnic or Holiday Events	100% Deductible	50% Deductible	De Minimis    IRC Sec. 132(e)
Meals as Employer Convenience (on premise rule)	100% Deductible	50% Deductible	IRC Sec.119 Employer Convenience
Working   Condition Fringe Meals	100% Deductible	50% Deductible
Travel Meals	50% Deductible	50% Deductible	These are not meals subject to the entertainment limits, they     are meals subject to travel limits
Meals reimbursed by employer under accountable plans	100% Deductible by employee, Employer subject to various tests which allow either a 50% deduction if business meals, or a 100% deduction if cost of providing service	100% Deductible by employee, Employer gets no deduction if business meals, 50% deduction if travel meals and 100% deduction if cost of providing service
Business meeting meals                   of			** Guidance is not totally   clear   here,

employees, stockholders         & directors	50% Deductible	**50% Deductible	and this is our opinion
Meals sold to the general public (like cost of putting on an event)	100% Deductible	100% Deductible