Tax Cuts and Jobs Act Summary of Select Provisions Updated January 3, 2018 Retirement Provisions Pre-tax elective deferral limit Hardship distributions Eligible employees may contribute up to $18,500 per year (for 2018) on a pre-tax basis to 401(k) and 403(b) plans. Individuals age 50 or older are permitted to make an additional catch-up contribution of $6,000 per year. If an employer offers Roth accounts, employees may contribute all or part of their elective contribution to the Roth accounts. Under 401(k) and 403(b) plan rules, participants are permitted to take distributions in certain circumstances, including in the event of financial hardship. Treasury regulations prohibit an employee from making elective deferrals or employee contributions to any plan maintained by the employer for at least six months after the employee receives a hardship distribution. Only elective deferrals may distributed on account of hardship. Earnings, qualified nonelective employer contributions (QNECs) and qualified matching contributions (QMACs) and associated earnings are not permitted to be distributed on account of hardship. Employees generally must take any available plan loan before receiving a hardship distribution. Retains the current 401(k) and 403(b) pre-tax elective deferral limits. No Roth mandate.
Rollover of plan loan offsets In-service distributions Closed plan nondiscrimination testing relief Recharacterization of IRA contributions Disaster relief distributions Retirement plans may accelerate an employee s obligation to repay a loan in certain circumstances, such as when an employee terminates employment; if the loan is not repaid, it may be cancelled and the employee s plan account balance may be offset by amount of the unpaid loan. This loan offset is treated as an actual (rather than a deemed) distribution and the amount of the distribution is eligible for rollover to another eligible retirement plan within 60 days. Qualified defined benefit plans generally may not permit inservice distributions before the earlier of age 62 (or the attainment of normal retirement age under the plan, if earlier) or termination of the plan. In-service distributions under a governmental section 457(b) plan are permitted after attainment of age 70½. Defined benefit plans that are closed to new employees but continue to provide benefit accruals to existing participants may have trouble satisfying nondiscrimination or minimum participation rules because the existing group becomes too highly paid or too small. If an individual contributes to a Roth or traditional IRA for a taxable year, the contribution may be recharacterized as a contribution to the other type of IRA before the due date of the individual s tax return for the year. In general, defined contribution plan distributions are taxable for the year in which the distribution is made. Such distributions made before age 59 ½ are also subject to a 10% early distribution penalty. Extend the period of time during which plan loan offset amounts may be rolled into an IRA upon termination of the plan or severance from employment. Individuals will have until the due date for filing their tax return. Effective for tax years beginning after 2017. Will prohibit the use of recharacterization to unwind Roth IRA conversions. The recharacterization of Roth and traditional IRA contributions will continue to be permitted. Provides tax relief for qualified 2016 disaster relief distributions. Waives the 10% early withdrawal penalty on qualified disaster relief distributions, allows the income inclusion from such distributions to be spread over a 3-year period and allows the amount withdrawn to be repaid within 3 years.
Executive and Equity Compensation Provisions $1 million compensation deduction limit Excise tax on compensation paid by tax-exempt organizations Qualified Equity Grants for private companies Stock compensation in corporate inversions A limit of $1 million applies to compensation paid by publiclytraded companies to their covered employees the CEO and the three most highly compensated officers other than the CEO. Performance-based compensation and commissions are not subject to the limit. Status as a covered employee is determined as of the end of the employer s taxable year. No provision. In general, an employee must recognize stock-based compensation for the taxable year in which it transferable from the employer or in which there is no longer a substantial risk of forfeiture, regardless of whether the stock is tradeable on an established securities market. Insiders of an expatriated corporation are subject to a 15% excise tax on certain stock compensation held during the 12 month period beginning 6 months before the expatriation date. The exceptions from the $1 million deduction limit for performance-based compensation and commissions are eliminated. The definition of covered employee includes anyone who has been the CEO or CFO at any time during the year and the 3 other most highly paid employees. Once an employee is a covered person under 162(m) in any taxable year beginning after 2016, the employee will retain that status for compensation paid post-retirement or paid to beneficiaries. Entities covered by the provision include all publicly traded companies and foreign companies traded through ADRs and may extend the limitation to certain large private C or S corporations that may not have previously been covered. Applies for tax years after 2017. Provides a transition rule for remuneration paid under a written binding contract that was entered into before Nov. 2, 2017 and not modified in any material respect after that date. Imposes a 21% excise tax on excess remuneration paid to covered employees. In general, allows rank and file employees at private companies to defer income attributable to stock received following a stock option exercise or settlement of an RSU for up to 5 years if the stock is not tradeable on an established securities market. Generally applies after 2017. Increases the excise tax on stock compensation of insiders in expatriated corporations from 15 percent to 20 percent. Takes effect for corporations first becoming expatriated corporations after the date of enactment.
Carried interest Health Care Provisions Individual mandate Itemized deduction for medical expenses Archer MSAs The share of investment profits paid as compensation to investment managers that exceed the amount the manager has contributed to the partnership is classified under the tax code as capital gains. Capital gains held for one year are treated as long-term gains and are eligible for favorable tax treatment. Individuals must maintain minimum essential coverage for themselves and their tax dependents or pay a tax penalty. Taxpayers may claim an itemized deduction for unreimbursed medical expenses to the extent such expenses exceed 10 percent of adjusted gross income. Individuals generally are eligible for Archer MSAs if they are covered by a high deductible health plan (and no other health plan, except certain permitted coverage), work for a small employer or are self-employed (or are the spouse of such employee or self-employed individual). Individuals may deduct contributions to Archer MSAs; contributions made by employers are excludable from the employee s income. Impose a 3 year holding period for carried interest to be treated as a long-term capital gain. Applies for tax years after 2017. Eliminates the individual mandate penalty for months after December 31, 2018. Reduces the threshold for deducting qualified medical expenses to 7.5% of income for 2017 and 2018. Other Benefits-Related Provisions Employee Tax Exclusions Dependent care assistance In general, employees may exclude from gross income up to $5,000 annually for benefits under an employer-provided dependent care assistance program. Educational assistance Employees may exclude from gross income up to $5,250 annually in employer-provided educational assistance for undergraduate and graduate courses.
Adoption assistance Employees may exclude from gross income qualified adoption expenses paid or reimbursed by an employer under an adoption assistance program. The maximum exclusion for 2018 is $13,840. The exclusion phases out for higher income taxpayers. Retains the tax exclusion. Index the annual limit using the chained CPI (C-CPI-U) after 2017. Moving expenses Employees may exclude from gross income qualified moving expense reimbursements. Suspends the tax exclusion for years after 2017 and before 2026. Employer-provided housing Qualified bicycle commuting benefits The value of lodging provided to an employee, spouse, or dependents by or on behalf of an employer for the employer s convenience is excludible from the employee's gross income as long as the employee is required to accept the lodging as a condition of employment. Qualified bicycle commuting reimbursements of up to $20 per eligible month excludible from employee s gross income. Suspends the tax exclusion after years after 201 and before 2026. Employee achievement awards Chained CPI (C-CPI-U) Employers receive a limited deduction for the cost of an employee achievement award. Employee achievement awards that are deductible by an employer (or would be deductible except that the employer is a tax-exempt organization) are excludible from employee's gross income. Many parameters in the Internal Revenue Code are adjusted for inflation, and most of the adjustments are based on annual changes in the Consumer Price Index for all Urban Consumers (CPI-U). Indexes certain values in the Internal Revenue Code to C- CPI-U after 2017, including thresholds under the ACA 40% excise tax, HSA limits, FSA salary reduction cap, adoption assistance limit and others. Does not apply C-CPI-U to qualified plan limits.
Other Benefits-Related Provisions Employer Deductions and Tax Credits Parking and transportation benefits Employee achievement awards Other fringe benefits Paid FMLA tax credit Employers may deduct costs associated with providing qualified parking and transportation fringe benefits to employees, even though employees may exclude such benefits from gross income. Employers receive a limited deduction for the cost of employee achievement awards. Entertainment expenses generally are not deductible unless they are directly related to (or associated with) the active conduct of a company s trade or business. Deductible entertainment expenses are subject to a limit of 50 percent of the amount otherwise deductible. In addition, the deduction for food and beverages generally is limited to 50 percent of the amount otherwise deductible. Employers may deduct costs for on-premises athletic facilities, even though employees may exclude such costs from gross income. In general, the Family and Medical Leave Act (FMLA) allows employees to take up to 12 weeks of leave under specified circumstances, such as the birth or adoption of a child or to care for a serious medical condition. The FMLA does not require employers to pay employees during periods of family and medical leave. Repeals the employer deduction after 2017. Employers may not deduct cash, cash equivalents, gift cards, gift coupons or gift certificates (other than arrangements allowing an employee to select and receive personal property from a limited array of such items perselected and pre-approved by the employer) as employee achievement awards. Employers may not deduct meals, vacations, lodging, theater or sporting event tickets, stocks, bonds or other securities as employee achievement awards. Applies to amounts paid or incurred after 2017. Limits the deduction for meals. Repeals the deduction for entertainment expenses. Establishes a temporary tax credit for employers that offer paid family and medical leave programs that meet specified conditions, beginning after 2017. Credit sunsets after 2019.
Corporate Taxes Corporate tax rate Expensing Business interest expense Individual Taxes Tax rates of 15%, 25%, 34%, and 35% apply depending on the corporation s taxable income. Certain personal service corporations pay the 35% rate. An alternative minimum tax (AMT) also applies to corporations to the extent a corporation's tentative minimum tax exceeds its regular tax. The cost of property used in a trade or business or held for the production of income must be capitalized and cost recovered through annual deductions for depreciation or amortization. In general, an additional first-year depreciation deduction is allowed equal to 50 percent of the adjusted basis of qualified property acquired and placed in service before January 1, 2018. The 50% rate phases down to 40% for property placed in service during 2019 and 30% for property placed in service during 2020. Interest paid or accrued by a business generally is deductible computing taxable income, but the deduction is subject to a number of limitations. Amounts that are not deductible in a taxable year may be carried forward indefinitely. The corporate tax rate is 21% beginning in 2018. In general, pass-through entities may deduct 20% of income. The corporate AMT is repealed. In general, allows immediate expensing of qualified new property placed in service between September 27, 2017 and January 1, 2023, and phase-out the provision over 4 years. Includes a transition rule to allow taxpayers a 50% deduction for the first taxable year after September 27, 2017. Limits the deduction for business interest expense to 30% of the business s adjusted taxable income. For tax years beginning before January 1, 2022, adjusted taxable income will be computed without regard to deductions for depreciation, amortization or depletion. Tax brackets Seven income tax brackets apply: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Provides 7 tax rates: 10%, 12%, 22%, 24%, 32%, 35%, 37%. Standard deduction/personal exemption For 2018, the standard deduction is scheduled to be $6,500 for single filers, $9,550 for head of household and $13,000 for joint filers. The standard deduction will be $24,000 for joint filers, $12,000 for single filers and $18,000 for head of household filers. The personal exemption is repealed.
Child tax credit Mortgage interest deduction Alternative minimum tax (AMT) Estate tax Itemized deduction for taxes A taxpayer may claim a $1,000 refundable tax credit for each qualifying child under age 17. The credit is phased out for married taxpayers with incomes of $110,000 or more and single taxpayers with income of $75,000 or more. Taxpayers may take an itemized deduction for the interest paid on up to $1 million of mortgage debt for their principal residence and one other residence. Interest on up to $100,000 of home equity debt is also deductible. An AMT is imposed on the amount by which the taxpayer s tentative minimum tax exceeds the regular income tax for the taxable year. A tax is imposed on the transfer of the taxable estate upon an individual s death. For 2018, $5.6 million of estate value is scheduled to be exempt from the estate tax. In general, taxpayers may claim an itemized deduction for state and local income and property taxes. The child tax credit is increased to $2,000. A new $500 tax credit will be provided for each non-child dependent under age 18. Retains the age 17 limit and phases out the credit for joint filers with income exceeding $400,000 and other taxpayers with income exceeding $200,000. The interest deduction will be limited to loan amounts of $750,000 or less. The limit is $1 million for mortgage debt incurred before December 15, 2017. The deduction for home equity interest is repealed. Retains the AMT. Modifies exemptions and phase-out provisions. The estate tax exemption is doubled. The estate tax is not repealed. An aggregate $10,000 limit applies to the itemized deduction for state and local income, property and sales taxes. Sunset No provision. Individual tax provisions (tax rates, standard deduction, repeal of personal exemptions, child tax credits, repeal of bicycle commuting and moving expenses and others) sunset after 2025. Corporate tax provisions do not sunset.