United States: Fringe Benefits: What Tax Reform Means To The Employer

Last Updated: January 19 2018
Article by D. Finn Pressly, Todd A. Solomon and Rick Stepanovic


The new tax reform legislation includes important changes to the tax treatment of employer-sponsored benefit programs, including transportation benefit programs and moving expense reimbursements. The law also creates a new tax credit for employers who provide paid family and medical leave to their employees.

In Depth

After several tax reform proposals, the final version of the Tax Cuts and Jobs Act not only comes with an unwieldy name (officially, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018) but also a host of important changes to the tax treatment of employer-sponsored transportation benefit programs. In addition, the new law also restricts an employer’s ability to deduct many common business expenses, such as meals, entertainment and employee moving expense reimbursements. The Act also creates a new tax credit for employers who provide paid family and medical leave to their employees. The following summary highlights some of the new rules implemented by the Act.

Qualified Transportation Fringe Benefits

The Act substantially alters the tax treatment associated with employer-sponsored qualified transportation fringe benefit programs, such as programs where employees are provided allowances for parking or other transportation to work. First and foremost, the Act repeals the employer’s deduction for most “expenses” associated with qualified transportation programs. (The Act preserves the employer’s deduction for: [1] expenses necessary for the employee’s safety, and [2] reimbursement of travel expenses incurred by the employee for travel between his/her home and business.)

The Act is arguably broad enough to mean that the limitation on the employer’s deduction on transportation fringe “expenses” will prevent employers from deducting the wages paid to employees who choose to contribute pre-tax dollars to a qualified transportation fringe benefit program. While the IRS has not yet issued guidance on how to interpret the word “expenses,” this could be a negative development for taxable employers that could lose a deduction opportunity. In addition, the effect of this reading of the Act could be quite detrimental to tax-exempt entities. Generally speaking, non-deductible transportation benefit expenses will cause tax-exempt entities to incur unrelated business taxable income (UBTI). If a tax-exempt entity provides an opportunity for employees to pay transportation expenses on a pre-tax basis, the entity may inadvertently trigger UBTI, which could be a significant issue. Further complicating this issue are the local laws in New York City, Washington, DC, and the San Francisco Bay area that require certain employers to maintain qualified transportation fringe benefit programs under Code Section 132(f). Therefore, it will not be easy for certain employers to simply discontinue transportation fringe programs in order to avoid UBTI. Until further guidance is issued, tax-exempt entities should work with legal counsel and tax advisors to evaluate their potential UBTI exposure and options for providing transportation fringe program alternatives.

The good news is that the Act does not materially alter the employee’s tax treatment of employer-sponsored transportation benefits. Specifically, the new law does not restrict the employee’s ability to exclude a portion of the transportation fringes they receive (other than qualified bicycle commuting expenses, which cannot be excluded again until 2026). Further, employees are still permitted to set aside money on a pre-tax basis to pay for certain qualified transportation expenses if the employer maintains such a program.

Qualified Moving Expense Reimbursements

The Act discontinues the favorable tax treatment for employer reimbursements of an employee’s moving expenses. In addition, the Act prohibits employees from deducting moving expenses that were not paid or reimbursed by an employer. This means that no tax benefits will be available with respect to an employee’s relocation for work, regardless of whether the employer or employee bears the cost. The changes affect expenses incurred on or after January 1, 2018.

Both the exclusion and deduction are preserved only for active duty members of the military who move pursuant to a military order. Additionally, the favorable tax treatment for moving expenses will revert to its pre-2018 form beginning in 2026.

Employee Achievement Awards

Prior to tax reform, the Code allowed employers to provide different types of employee achievement awards on a tax-free basis. This income exclusion applied to the value of any “tangible personal property” given to an employee as an award for either length of service or safety achievement—e.g., the traditional gold watch award for service. The Act retains this exclusion and codifies limitations that were previously found only in proposed Treasury regulations. Under the Act, the following categories of employee awards are not considered tangible personal property: cash, cash equivalents, gift certificates (except when employees can only choose from a limited array of items pre-selected or pre-approved by the employer) or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds and other securities. The amount of the exclusion is $1,600 per employee annually for “qualified plan awards” (defined as those awarded as part of an established written plan or program of the employer which does not discriminate in favor of highly compensated employees) or $400 for awards that are not “qualified plan awards.”

New Tax Credit for Employers Providing Paid Family and Medical Leave

The Act adds new Section 45S to the federal tax code to incentivize the use of paid family and medical leave. Section 45S allows employers to claim a business tax credit for a portion of the wages paid during family and medical leave. To qualify, employers must have a written program providing all qualifying full-time employees at least two weeks annual paid family and medical leave. Importantly, part-time employees must be provided a commensurate amount of leave on a pro rata basis. Eligible employers who pay at least 50 percent of an employee’s regular wages during the leave can claim a credit of 12.5 percent of the wages paid for up to 12 weeks of family and medical leave per year. The credit is increased by 0.25 percentage points, up to a maximum of 25 percent, for each percentage point by which the rate of payment exceeds 50 percent. The new credit is effective beginning January 1, 2018.

Meals and Entertainment

Effective January 1, 2018, the Act completely eliminates an employer’s tax deduction for most entertainment, amusement and recreation expenses—even if those expenses are related to the employer’s business (such as hosting a client at a sporting event). The Act preserves the employer’s right to deduct 50 percent of certain non-entertainment meal expenses, such as expenses incurred by an employee on business-related travel. The Act further expands the 50 percent deduction to include food and beverages provided to employees through an eating facility at or near the employer’s business premises, so long as the expense would be excluded from the employee’s income as a de minimis fringe benefit under Code Section 132. Beginning in 2026, employers will no longer be able to deduct the expenses of operating such a facility, including the costs of the meals furnished for the convenience of the employer.

Affordable Care Act Individual Mandate

The Act also repeals the controversial “individual mandate” portion of the Affordable Care Act effective as of January 1, 2019. (The penalty remains in effect for 2017 and 2018.) This change does not directly impact employer-sponsored medical plans, nor does it impact the “employer mandate” portion of the Affordable Care Act. Employers should not expect to see significant changes as a result of the individual mandate’s repeal, other than a slight decline in younger, lower-paid workers electing coverage in 2019.

Changes Proposed, but Not Enacted

Earlier versions of the tax reform legislation proposed changing or eliminating the tax-favored treatment of educational assistance programs, dependent care assistance programs, adoption assistance programs, employer-provided childcare, and employer provided housing benefits. These proposed changes, however, did not appear in the final version of the enacted legislation.


Given the short notice of many changes under the newly enacted tax reform legislation, employers should promptly and carefully review their employee benefit programs to ensure they are providing benefits in the most tax-efficient way possible. Because the changes in the Act also impact the deductibility of expenses, employers should examine their reimbursement policies to determine whether changes are warranted. In addition, tax-exempt organizations should consult their advisors to determine whether continuing to maintain a fringe benefit program might inadvertently trigger UBTI liability. In the meantime, we expect to see clarifying guidance and regulations from the IRS on many of these new tax rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions