Trump Tax Reform: How It Impacts Employee Benefits

On December 19, 2017, the Senate voted to approve the Tax Bill and, on December 20, 2017, the House also voted to approve it, which lead to President Trump signing into law the Tax Cuts and Jobs Act on Friday, December 22, 2017.

Tax Rate Cuts

"While it's hard to predict exactly what the impact of the reform will have on corporate America, some provisions in the new tax law could have a noticeable impact on
​employees."

In this article, we’ll examine some of the biggest changes the HR and Benefit Industry can expect to see.

One of the most immediate and impactful results of the Trump Tax Reform is individual and business tax rate cuts. Not only will employees be receiving more take home money due to reduced income taxes, but upon the finalization of the bill passing several companies - such as Walmart, Fifth Third, Comcast, and Bank of America - have announced that they will use the extra funds from the business tax reductions to give employee bonuses and increase employee pay. The biggest challenge that this will have company internal administration procedures will be on payroll. Companies and third-party payroll administrators will need to overall their current structure to incorporate the new tax brackets and withholding rates into their systems before paychecks will reflect the new rates. The tax law retained its seven income brackets but lowered the tax rates applied to each bracket and modified some of the income levels. This will, or already has, imposed challenges to payroll systems that are less flexible to incorporate these changes.

Provisions Impacting Benefits

In addition to the tax rate cuts there a number of provisions that will affect FMLA, 401Ks and retirement benefits, executive compensation, and fringe benefits.

Under the Family Medical Leave Act, employers are not required to pay employees while on leave. However, under the new tax reform there is now a partial tax credit to employers who offer wages during times when an employee is out on FMLA. That being said, employees of companies that are looking for additional tax breaks could potentially benefit from the tax reform by receiving pay when out FMLA. While that would certainly be an added benefit to a lot of Americans, the Trump Tax Reform will eliminate several fringe benefits that many employees have come accustom to. The Tax Cuts and Jobs Act will effectively repeal employee deductions and income exclusions for moving expenses, deductions for business entertainment expenses, deductions for transportation expenses, as well as a number of other miscellaneous itemized deductions. 

ACA Individual Mandate Repeal

Perhaps the most notable provision of the new tax reform, is the ACA’s Individual Mandate Repeal. This legislation does not change the obligation of qualifying large employers to offer ACA-compliant insurance to their full-time employees and to report on the offer. However, it does effectively eliminate the individual mandate by eliminating the penalty for not purchasing individual healthcare insurance beginning in 2019. While this provision on the surface doesn’t appear that it would have much impact on employers and HR procedure, there is one aspect it could affect, and that’s Federal COBRA. Under the current ACA Individual Mandate an individual will owe a fee for certain durations that you, your spouse, or your tax dependents don't have qualifying health coverage. Learn more about Federal COBRA by calling and speaking with one of our professional and knowledgeable representatives. 

The fee is calculated either as a percentage of your household income or per person, whichever is higher. The penalty for not having insurance in 2017 will be either 2.5% of household income or $695 per adult and $347.50 per child under 18, whichever is higher. Despite not having the data to prove it, one would be reasonable to assume that with the individual mandate in place, individuals who lose their employer benefits due to a Qualifying Event would be more likely to elect COBRA in order to avoid the individual mandate fee, if for no other reason. Conversely, with the repeal of that ACA provision, it would seem plausible for companies to see a decrease in the number of COBRA enrollment elections. As to what extent, if any, remains to be seen. Read our blog to learn more on how to calculate ACA Benefits Rates. 

For more information about Open Enrollment, Federal COBRA, the Trump Tax Reform, and Tax Cuts, call us today! 

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About the Author Grant Ameel graduated from Michigan State University with a degree in Political Science and a Minor in Economics. He has worked for over eight  years in a Human Resources capacity, specifically specializing in Federal labor laws. Having worked for small to medium sized privately owned companies, to working for some of the world’s largest employers such as Microsoft and Compass Group, Grant is CobraHelp’s resident expert on all things COBRA, FMLA, and employer compliance.

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