Tax Reform’s Impact on Transit and Commuter Benefit Programs

Capitol Building - Tax Reform's Impact on Transit and Commuter Benefits

Following months of discussion between the White House and the chambers of Congress, President Trump signed H.R. 1 (“Tax Reform”) on December 22, 2017. This debate included several proposals that would have affected employee benefits, but the enacted legislation will significantly impact only transit and commuter benefit programs.

Tax Reform eliminates the employer business tax deduction for employer contributions to commuter benefit programs. This means that an employer will not be able to deduct contributions that it makes toward an employee’s commuter parking, public transit, or commuter vehicle expenses.

Employers will, however, be able to deduct employer contributions to bike commuting expenses.

Employees will be able to continue contributing pre-tax to commuter parking, public transit, or commuter vehicle accounts, but will no longer be able to contribute pre-tax dollars for bike commuting expenses.

ConnectYourCare is awaiting further guidance from the Internal Revenue Service on how commuter benefit programs will be affected, but it is likely that employers will continue to benefit from FICA tax savings due to pre-tax contributions of employees and unlikely that employers will be able to deduct the expenses of administering an employee-funded commuter benefit program.

Additionally, inflation increases to FSA, HSA, and Cadillac Tax qualifications and limits will be calculated using Chained Consumer Price Index (“Chained CPI”) rather than standard Consumer Price Index (“CPI”) following passage of Tax Reform. Chained CPI is likely to result in more gradual increases to FSA and HSA contribution limits and to Cadillac Tax applicability numbers than under standard CPI.

Proposed changes to employee benefit plans that were not included in the final bill include elimination of adoption and tuition reimbursement plans, elimination or sunsetting of dependent care FSAs, and rothification of retirement benefits.

ConnectYourCare views non-inclusion of these provisions as a positive achievement for employers and employees.

ConnectYourCare remains optimistic that Congress and the President will continue to push for increased usability and attractiveness of Health Savings Accounts and Health Reimbursement Accounts and for a repeal of the Cadillac Tax in the coming year and beyond.

> Employee Next Steps: Interested in learning more about HSAs? Download our HSA For Dummies® eBook to learn more about eligible expenses, contribution rules, and much more.

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> Employer Next Steps: If you’re an employer interested in improving and expanding upon your company’s consumer-directed benefits, contact us to learn how ConnectYourCare’s offerings and services can help your employees.

ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.