Many small business employers are rethinking their employee’s compensation in light of the recent tax reform. Certain industries, like transportation, will be hit harder than others. Be proactive and review your policies so that your employees don’t suffer a shock come tax time.
There were many significant changes with the recent tax reform for Small Businesses. Click here to read more. But one big change has a potentially devastating impact on your employees. Miscellaneous Deductions subject to the 2% of AGI floor were removed for tax years 2018 through 2025. One of the most common of the expenses that fall under this category is unreimbursed employee expenses. Typically this includes things like uniforms, tools, and other items required for the job, but paid for by the employee.
Travel expenses, including mileage and per diem for overnight travel add up quickly. Many industries (e.g. trucking/transportation) and types of employees (e.g. sales) have large deductions on their personal returns for these items. Reaching several thousand dollars in some cases, some employees are going to face a surprise when they receive their tax refund.
The offset Congress put in the law was to increase the standard deduction, which will help some employees, but not all.
What to Do
Some employers are revisiting their reimbursement policies to include items not previously paid. Alternatively, you can at least let the employees know about the change and advise them to recalculate their tax withholding on their paychecks. The point is you need to do something, don’t just let it go and have some potentially very upset employees who might blame you for their misfortune. Look at your industry groups for guidance on what others in your space are doing around the country. Make sure you’re keeping up with your competition. You don’t want to end up with a competitive disadvantage because of the tax law!
Now is an ideal time to revisit your employees compensation and benefits. We at Core handle all of your employee related items from payroll to benefits, timekeeping to worker’s compensation. Schedule a call to see how we can help you keep satisfied employees.