The House released its tax reform proposal titled the “Tax Cuts and Jobs Act” (H.R. 1) late last week. This week the Ways and Means Committee has held a series of hearings to offer debate and amendments to the original proposed bill. As of late Thursday afternoon, the Ways and Means Committee has approved the Republican version of the bill that included Chairman’s Amendment #1 and #2 restoring some of the provision set for repeal in earlier versions. In an effort to meet President Trump’s request to get tax reform through the House by Thanksgiving, there is an expectation that the House may vote on this revised version of the bill the week of November 13th.
The Senate is also already working on a version of tax reform. As of today it has been reported that there several differences between the House and Senate bills, with the Senate retaining a number of deductions for unreimbursed business expenses that are eliminated in the House version. It is important to understand that if the House is able to get a bill passed, it must be reconciled with the Senate version in order to deliver to the President for signature. This bill may continue to evolve over the next few weeks and the summary below is snapshot of what is included as of today.
So as we take a closer look, what made the tax reform list to overhaul the tax code and what did not?
A summary of the items currently included in the proposal of most interest to employers:
- Elimination of Dependent Care Assistance Flexible Spending Accounts (FSA)
- The effective date of this change under the Chairman's Amendment #1, would be delayed for 5 years (making it effective for plan years starting after December 31, 2022)
- Elimination of the employer deduction for employer provided child care (Section 129)
- Elimination of Archer MSA contributions
- Elimination of Employer provided education assistance (Section 127)
- Elimination of the exemption for employer-provided educational assistance
- Elimination of individual deduction for job-related moving expenses, except in the case of a member of the Armed Forces of the United States on active duty who move pursuant to a military order
- Elimination of the deduction for employee achievement awards
- Elimination of the employer deduction for qualified transportation benefits
- Employees’ expenses would still be able to receive tax-favored treatment
- Elimination of itemized deduction for medical expenses on personal tax returns
- Health FSAs, HRAs and HSAs may still reimburse eligible medical expenses on a tax favored basis
A summary of items NOT currently included:
- No change to the exclusion for employer-provided health care benefits
- No change to the tax treatment of employee contributions to 401(k), 403(b) and 457 plans.
- No change to the taxes and mandates included in the Affordable Care Act, such as:
- Cadillac Tax
- RX requirement on Over-the-counter medications
- Health FSA limit on employee contributions
- 20% penalty on HSA distributions for non-medical reasons
- Employer Mandate
- Individual Mandate
- No expansion of HSAs
- Separate legislation has been proposed to expand health savings account limits to the out-of-pocket maximum on HSAs
- By virtue of Chairman’s Amendment #2, the amendment preserves the current law non-refundable credit for qualified adoption expenses
The tax bill is a long way from finished, and what is and is not included, even in the House bill, could still see many changes. We will continue to monitor the tax reform process and will provide updates accordingly.