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Tax Reform & the ACA (Obamacare)

So the Senate and the House have both passed a tax reform bill as we run close to the end of 2017. We were fortunate to have a piece from an ERISA/Employee Benefits Attorney that did a nice job of summarizing some key provisions. Though not an absolute detail here, this gives us a nice overview of some areas in which there was particular concern around employee benefits, taxation, and mandates perhaps being stripped from Obamacare (PPACA) – the individual and employer mandates:

Individual Mandate.
The individual mandate penalty will be reduced to zero beginning in 2019. Neither the employer mandate nor the employer reporting requirements are affected by the bill.

Transportation Benefits.

  • Employers will not be able to deduct expenses for qualified transportation fringes paid or incurred after 12/31/17.
  • For years 2018 through 2025, qualified bicycle commuting expenses will not be excludable from an employee’s income.
  • All other qualified transportation fringes (such as parking or transit benefits) will remain excludable from an employee’s income under Code Section 132(f). As a result, employers may continue to provide qualified parking benefits of up to $260 per month (in 2018) and qualified transit benefits of up to $260 per month (in 2018) tax-free under Code Section 132(f).

Retirement Plan Loan Offset Rollovers.
The time period for making an eligible rollover of a loan offset (currently 60 days following date of the offset) will be extended in certain cases beginning with offsets that occur on or after 1/1/18. If a loan is offset due to a plan termination or a severance from employment, Individuals may effect the rollover by making a comparable contribution to another retirement plan or IRA at any time before the due date of the individual’s tax return for the year in which the offset occurred.

Retirement Plan Disaster Relief.
Beginning on the date the law is enacted, certain disaster relief is provided for distributions taken in 2016 or 2017 by any retirement plan participants who lived in an area declared by the president in 2016 to be a disaster area and who sustained an economic loss as a result of the applicable disaster. These distributions will not be subject to the 10% early distribution penalty or the 20% withholding requirements and could be permitted regardless of whether an in-service distribution would otherwise be permitted. Plan amendments to take advantage of this relief may be adopted retroactively by the last day of the 2018 plan year.

Provisions Not Included in Final Bill

Education Assistance.

  • The exclusion for educational assistance programs under Code Section 127 will not be affected. As a result, employers may continue to provide tuition reimbursements and other educational assistance of up to $5,250 per year tax-free under a qualified Code Section 127 plan.
  • The bill will not impact an employer’s ability to provide more limited tax-free educational assistance as a working condition fringe under Code Section 132. As a result, employers may continue to provide tuition reimbursements and other educational assistance tax-free under Code Section 132(c) to the extent they are limited to education that is related to the employer’s trade or business and does not qualify the employee for a new trade or business. 

Adoption Assistance.
The exclusion for adoption assistance programs under Code Section 137 will not be affected.  As a result, employers may continue to provide adoption assistance of up to $13,840 per adoption (for 2018) under a qualified Code Section 137 plan.

Dependent Care Assistance.

The exclusion for dependent care flexible spending account benefits under Code Section 129 will not be affected. As a result, employers may continue to allow employees to make pre-tax contributions and receive non-taxable reimbursements of up to $5,000 (or $2,500 in certain cases) per year to a dependent care flexible spending account.

Pre-Tax Contributions to Retirement Plans. 
The contribution limits for pre-tax and Roth contributions to a qualified retirement plan are not affected. As a result, qualified defined contribution plans can continue to allow participants to contribute up to $18,500 per year (for 2018) as pre-tax and/or Roth contributions with an additional $6,000 (for 2018) as catch-up contributions.

Catch-Up Contributions to Retirement Plans.
Eligibility for making catch-up contributions has not changed. As a result, qualified defined contribution plans can continue to allow participants age 50 and over to make catch-up contributions of up to $6,000 per year (for 2018), regardless of the participant’s income level.

Hardship Distributions of QNECs and QMACs.
The bill does not change the prohibition against allowing hardship distributions from QNECs or QMACs. Accordingly, qualified defined contribution plans still may not allow participants to take hardship distributions from QNECs or QMACs.

Six-Month Suspension Following Hardship Distributions.
The bill does not affect the requirement to suspend contributions for six months following a hardship distribution. Accordingly, qualified defined contribution plans that use the hardship safe harbor must prohibit participants from making contributions to the plan for six months following a hardship distribution.