By: Andrew Fawbush, partner, Laura Miller Andrew, partner, Lisa Carrasco, partner, Quinn Baker, associate, and Brandon Sherlinski, associate, all at Smith, Gambrell & Russell, LLP in Jacksonville, Fla.
On Wednesday, the new tax bill (the Act) passed both the House and the Senate and is expected to be signed by President Trump prior to the end of the year. The Act includes a number of provisions affecting employee benefit plans and deferred compensation arrangements, such as:
- Individuals will no longer be able to unwind a Roth IRA conversion.
- The period during which certain qualified plan loan offsets may be rolled over tax-free is extended from 60 days until the due date (including extensions) for filing the participant’s federal income tax return.
- The 10 percent early withdrawal tax on retirement plan distributions made in 2016 and 2017 will not apply to certain distributions made by individuals living in Presidentially-declared disaster areas.
- Certain employees may elect to defer income taxes (but not payroll taxes) with respect to certain stock options exercised or restricted stock units settled.
- Income tax deductions on compensation paid by publicly-traded companies to certain top executives are further restricted.
- New 21 percent excise tax on excessive compensation paid to executives of tax-exempt entities.
- Reduction to 0 of the Patient Protection and Affordable Care Act’s individual mandate tax, beginning in 2019.
- Employer deductions for certain entertainment expenses are disallowed (though such amounts continue to be excludible from employees’ income).
- New employer tax credit for paid family and medical leave paid in 2018 and 2019.
Except as specifically provided, these changes go into effect for tax years beginning on or after January 1, 2018. The full impact of the Act on employee benefits and deferred compensation arrangements is currently unknown as the provisions of the Act have yet to be interpreted.