The tax legislation signed into law late in 2017 continues to affect both employers and employees alike. In May 2018, the IRS published an announcement detailing several changes to job-related deductions. It is incumbent on taxpayers to understand these changes prior to filing their 2018 tax returns early in 2019.
As an employer, you can help make the lives of your workers a little bit easier by understanding these changes as well. Being able to give competent advice can be a difference-maker to workers who do not necessarily understand the complex nature of deductions. To that end, below are the three changes announced by the IRS earlier this year (2018).
1. No More Deductions for Moving Expenses
Prior to the Tax Cuts and Jobs Act (TCJA), workers could deduct moving expenses from their federal taxes. That is no longer the case. For all moves commencing after December 31 of 2017, no deductions will be allowed. This includes deducting vehicle mileage related to a move. However, there is one exception to the rule change.
Active military personnel forced to move "pursuant to a military order related to a permanent change of station" are still eligible for the deduction. This is reasonable. Active-duty military do not have a choice about where they are stationed or how long they remain at a given post. They move at the whim of military planners. As such, they need the ability to deduct the moving expenses they incur through no decision of their own.
2. No More Miscellaneous Itemized Deductions
The TCJA also eliminates miscellaneous itemized deductions that were previously subject to the "2 percent of adjusted gross income floor." What does this mean? It means that employees who were itemizing certain kinds of unreimbursed employment related expenses can no longer do so. This includes deductions for things like:
• Required employee uniforms
• Union dues (and service fees for non-union employees)
• Job-related meals, entertainment, and travel.
This particular change is important to employers. Without the deduction, any unreimbursed expenses incurred by workers is money taken directly out of their pockets. The change makes paying for such things a lot more difficult for employees who might otherwise not have balked about it.
3. Changes to Standard Mileage Rates
According to the IRS announcement, new mileage rates have been introduced beginning with the 2018 tax year. Those rates are as follows:
• 54.5 cents per business mile traveled
• 18 cents per mile for medical travel
• 14 cents per mile for charitable service.
The rates for business and medical travel have both increased by a penny. The rate for charitable service remains unchanged from 2017. Also unchanged is the ability to forgo standard rates in favor of manually calculating vehicle use. In concert with increased mileage rates, the TCJA also increased depreciation limits on passenger vehicles put into service beginning from January 1, 2018.
What the Changes Mean for Your Company
While the three changes announced in May 2018 do not have a direct impact on how you handle payroll, they do affect your employees and their tax positions. We urge employers to educate themselves about these changes and how they may negatively impact workers affected by them. The loss of deductions may dictate additional compensation to workers who will now pay more taxes.
If you have any questions about anything related to payroll and benefits, we invite you to contact us. We are a national provider of payroll processing, benefits administration, and back office functions. We can custom design a solution to meet your company's needs. Also note that we have specialized solutions for the restaurant and construction industries.