Provisions in the House Republicans’ Tax Proposal Affecting Employee Benefits

From Nixon Peabody:

Provisions in the House Republicans’ tax proposal affecting employee benefits, which generally would become effective January 1, 2018, include the following:

• The provision allowing employers to provide employees up to $5,250 of tax-free educational assistance would be repealed, and such benefits would become taxable.
• Qualified tuition reduction benefits provided by educational institutions to their employees and their employees’ spouses and dependents would become taxable
• Employer contributions to an Archer MSA would not be excluded from income.
• The tax exclusion for certain employee achievement awards would be repealed and the value of such benefits would be taxable to the employee and deductible by the employer.
• The exclusion for housing provided for the convenience of the employer and for employees of educational institutions would be limited and phased out for highly compensated individuals.
• The tax exclusion for employer-provided dependent care assistance programs would be repealed.
• The exclusion for employer-paid qualified moving expenses would be repealed.
• Employees will be taxed on benefits provided under an employer- sponsored adoption assistance program.
• The limits on employee pre-tax elective contributions to 401(k) plans would not change, but there would be a modest relaxation to some 401(k) plan rules. For example, employees taking hardship distributions would be permitted to continue making contributions to the plan. Additionally, hardship distributions could be made from employer contributions and investment earnings. Finally, employees whose plan terminates or who separate from employment while they have plan loans outstanding would have until the due date for filing their tax return for that year to contribute the loan balance to an IRA in order to avoid the loan being taxed as a distribution.
• Frozen qualified defined benefit retirement plans would be given some relief to more easily pass nondiscrimination testing.