In Publication 15-B, Employer's Tax Guide to Fringe Benefits, the IRS explains important changes to fringe benefits under the Tax Cuts and Jobs Act (TCJA, P.L. 115-97) as they relate to achievement awards, de minimis meals, moving expenses, transportation fringe benefits and the election to defer income on equity grants. (See Tax Alert 2017-0768.)

This Alert is a recap of these changes as contained in the recently-posted Publication 15-B.

Achievement awards

The TCJA defines items that aren't tangible personal property for purposes of the employment tax exclusion for employee achievement awards. Tangible personal property doesn't include cash, gift cards, and other nontangible personal property. (Publication 15-B, page 8; TCJA Section 13310.)

De minimis meals

The TCJA does not change the rules for food or beverage expenses that are excludable from federal taxable wages as a de minimis fringe benefit but such expenses are now only 50% deductible by employers. Food or beverage expenses related to employee recreation, such as holiday parties or annual picnics, aren't subject to this 50% deduction limit (meaning, a 100% deduction is allowed) when provided primarily for the benefit of employees other than employees who are officers, shareholders or other owners who own a 10% or greater interest in the employer's business, or other highly compensated employees. (Publication 15-B, page 17; TCJA Section 13304.)

Moving expenses

Publication 15-B does not elaborate on the TCJA suspension of the exclusion from federal taxable wages for qualified moving expense reimbursements for tax years beginning after December 31, 2017, and before January 1, 2026. The suspension of the moving expense exclusion does not apply to members of the U.S. Armed Forces on active duty who move because of a permanent change of station. (Publication15-B, page 2; TCJA Section 11048.)

Transportation fringe benefits

Qualified bicycle commuting reimbursement suspended

The TCJA suspends the exclusion of qualified bicycle commuting reimbursements from federal taxable wages for any tax year beginning after December 31, 2017, and before January 1, 2026. (Publication 15-B, page 21; TCJA Section 11047.)

Qualified transportation benefits aren't deductible

The TCJAprovides that no deduction is allowed for qualified transportation benefits, whether provided directly by the employer, through a bona fide reimbursement arrangement, or through a compensation reduction agreement (pretax contribution) incurred or paid after December 31, 2017.

Also, no deduction is allowed for any expense incurred for providing any transportation, or any payment or reimbursement to employees in connection with travel between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee, or for qualified bicycle commuting reimbursements as described in IRC Section 132(f)(5)(F) (even though the exclusion from federal taxable wages for qualified bicycle commuting reimbursements is suspended, as discussed above).

While employers may no longer deduct payments for qualified transportation benefits, the fringe benefit exclusion rules still apply and the payments may be excluded from federal taxable wages as explained in Publication 15-B, page 20. (TCJA Section 13304.)

Election to defer income on equity grants

Under IRC Section 83(i) added by the TCJA, qualified employees who are granted stock options or restricted stock units (RSUs) and who later receive stock upon exercise of the option or upon settlement of the RSU (qualified stock) may elect to defer the recognition of income for federal income tax purposes for up to 5 years if (1) the corporation's stock wasn't readily tradable on an established securities market during any prior calendar year, (2) the corporation has a written plan under which not less than 80% of all US employees are granted options or RSUs with the same rights and privileges to receive qualified stock, and (3) certain other requirements are met.

An election under IRC Section 83(i) applies only for federal income tax purposes. The election has no effect on the application of Social Security, Medicare, and federal unemployment insurance taxes.

For federal income tax purposes, the employer must withhold federal income tax at 37% in the tax year that the amount deferred is included in the employee's income. If an IRC Section 83(i) election is made for an option exercise, that option will not be considered an incentive stock option or an option granted pursuant to an employee stock purchase plan.

These rules apply to stock attributable to options exercised, or RSUs settled, after December 31, 2017.

For more information, including guidance about the year the income is included, the definition of a qualified employee, the time for making the election, and employee notice requirements, see IRC Section 83(i). (Publication 15-B, page 12; TCJA Section 13603.)

Form W-2 reporting requirements

For each employee, report in Form W-2, box 12, code GG the amount included in income in the calendar year from qualified equity grants under IRC Section 83(i). Also report in Form W-2, code HH the total amount of income deferred under IRC Section 83(i) determined as of the close of the calendar year.

For more information about employee stock options, see IRC Sections 83, 421, 422, and 423 and their related regulations.

Ernst & Young LLP insights

The TCJA's impact on fringe benefits is significant and will require that businesses carefully evaluate their policies and confirm that payroll systems are configured for the correct tax and reporting for federal, state and local jurisdictions.

Our professionals are ready to assist you with extensive experience and innovative tools.

For more information on the employer implications of the TCJA, see our special report.

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