Author: ericgregory

Tax Reform: The Five Big Changes Affecting Employee Benefits

On December 22, 2017, President Trump signed H.R. 1 (formerly, the “Tax Cuts and Jobs Act” (the “Act”)) into law. While the Act was primarily focused on business tax cuts and individual tax reform, the Act includes several provisions that have implications for employee benefits and executive compensation. 1.  Compensation Deduction Limits for Publicly Traded Employers Prior Law Under Code Section 162(m), publicly held corporations are limited to a $1 million cap on the deductibility of compensation paid to a single “covered employee.” Prior to the Act, “covered employees” included the CEO and the three highest paid officers. Additionally, there was an exception that generally allowed compensation to be deductible (without regard to the $1 million cap) if it was “performance-based compensation,” based on performance goals set by a compensation committee with shareholder approval. Changes in the Act The Act repeals the performance-based compensation exception, and expands the definition of covered employees to include the CEO, CFO, and three highest paid employees. Additionally, once an employee qualifies as a covered employee, the deduction limitation applies so long as that employee or any beneficiary is being paid by the corporation. The Act also expands the definition of “publicly traded corporation” to include all companies that file SEC reports. Implications and Action Steps The Act’s changes for the compensation deduction limits go into effect for taxable years beginning after December 31,...

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Penalties are Coming: The IRS to Begin Enforcing the Affordable Care Act’s Employer Mandate

The IRS has taken actions indicating that the employer mandate penalties under the Affordable Care Act are about to be enforced. Employers should expect to begin receiving letters from the IRS indicating penalties are due for the 2015 year in the coming weeks. There are a few things that employers can do to be prepared for these letters, which require a quick 30-day response. The IRS recently updated its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act to include Q&As 55-58, “Making an Employer Shared Responsibility Payment.”  The Q&As indicate that if the IRS believes that an Applicable Large Employer (“ALE”) owes an employer mandate penalty under the Affordable Care Act, the ALE will receive a Letter 226J. The IRS plans to issue Letter 226J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee). The IRS will make the determination as to the liability for an employer mandate penalty based on information reported to the IRS on Forms 1094-C and 1095-C and whether full-time employees received a premium tax credit. Actions Employers Should Take Now  The IRS has...

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The IRS Announces Updated Limitations Related to Employer Plans; 401(k) Contribution Limit Increases to $18,500 for 2018

The Internal Revenue Service (“IRS”) announced cost of living adjustments affecting dollar limitations for employer plans for tax year 2018. The IRS issued technical guidance detailing these items in Notice 2017-64, in addition to previous guidance in Rev. Proc. 2017-37 and Rev. Proc. 2017-58. Many of the limitations will change because the increase in the cost-of-living index met the legal thresholds that trigger their adjustment. Some limitations remain unchanged because the increase in the index did not meet the statutory thresholds that give rise to their adjustment. Retirement Plan Limitation Highlights for 2018 The following will likely be of the greatest interest to employers who sponsor retirement plans: The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans is increased from $18,000 to $18,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans remains unchanged at $6,000. The limitation for defined contribution plans under Code §415(c)(1)(A) is increased in 2018 from $54,000 to $55,000. Effective Jan. 1, 2018, the limitation on the annual benefit under a defined benefit plan under Internal Revenue Code (“Code”) §415(b)(1)(A) is increased from $215,000 to $220,000. For a participant who separated from service before Jan. 1, 2018, the limitation for defined benefit plans under Code §415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0196....

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The HR Blog is published by Dickinson Wright PLLC to inform the public of important developments within the firm and practice areas. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in this blog.