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How the new tax law affects employee benefits

A new federal tax reform bill signed into law at the end of 2017 and put into effect on January 1, 2018 could lead to changes for many employees across the country. As corporations begin adapting to the significant amount of revisions made by the new law, employees should be prepared for both the positive and negative outcomes that may be reflected in their benefits and in their paychecks.

The possible positives

First, we’ll take a look at some of the positive things that may already be or will soon be in effect for employees. 

●      One time bonuses and increases in hourly pay

The passage of the new tax law was quickly met with announcements from several companies, both large and small, that employees who were eligible for them would be receiving a one time bonus and/or a general increase in their hourly wages due to a lowering of the corporate tax rate from 35 percent to 21 percent. New tax brackets, with lower tax rates applied to individuals, will also lead to larger paychecks for a lot of employees. This increase in hourly wages should be in effect or taking effect as soon as March 2018.

●      Perks for employers who pay during FMLA

Another potentially positive development of the new tax law comes in the form a partial tax credit that will be offered to employers who opt to offer payment to employees who have to take leave under the Family and Medical Leave Act (FMLA). Prior to the passage of the new law, employees were allowed up to 12 weeks of leave through FMLA each year, but employers were not required to provide any time of pay during that leave time.

The possible negatives

While there is clear potential for positive changes for some employees, the new law has also altered a few things that some employees may have relied on in the past. 

●      Loss of option to claim deductions for unreimbursed work expenses

Many employees who have been required to spend their own money to cover expenses for work related costs like mileage and travel, uniforms, dues, home office equipment and more have previously been able to claim a deduction for those costs which were not paid by their employer. This option has been eliminated until at least 2026, leaving employees with no way to recoup costs that their employer won’t reimburse. This is, however, of less immediate concern to employees in California, which does require employers to reimburse employees for expenses or losses that are a direct consequence of the duties of their job. 

 ●      Loss of unreimbursed moving expenses and Tax-free transportation

Another deduction that has been suspended until 2026 is the cost of moving expenses for employees of a company that moves to a new location which is further than 50 miles away from their former residence. Reimbursement for a move can still be covered by a company, but this formerly tax-free fringe benefit will now be taxed. Transportation and commuting costs, like parking, passes for transit services or incentives for car-pooling, and monthly maintenance coverage of up to $20 for employees who ride their bicycle to work, which were formerly tax-free can still be provided by employers, but are expected to be limited or eliminated altogether due to the fact that they can no longer be claimed as deductions by the company, making them more expensive to provide for employees. 

While the full effect of the new tax law remains to be seen and will depend on the ways that corporations choose to handle some of these changes, employees in California should be aware of any possible changes that may affect their personal expenses or wages and address their concerns with their employers promptly. If you have questions regarding the legality of changes made by your employer in the state of California, feel free to contact our offices today for a free consultation.

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