The new Tax Cuts and Jobs Act (TCJA) includes significant changes for individuals and businesses alike, enhancing some tax breaks and eliminating or reducing others. One new provision creates a new tax credit for employers who pay wages for family and medical leaves.
Currently, the new credit has a short shelf life, taking effect in 2018 and only lasting through 2019. However, there’s a chance it will be extended by future legislation.
Eligible employers can claim a credit equal to a percentage of wages paid to qualifying employees on leave under the Family and Medical Leave Act (FMLA).
Here’s how it works
The IRS has yet to issue official guidance, but here are some of the basics:
- To qualify for the credit, the employer must provide at least two weeks leave at a rate of at least 50 percent of regular earnings.
- The credit percentage ranges from 12.5 percent to 25 percent of the paid leave based on the amount of wages. For instance, the credit is equal to only 12.5 percent of the wages if the employer pays the minimum 50 percent of the regular pay rate, but gradually increases to a maximum of 25 percent if the employer pays the normal wages.
- The credit is available only for wages paid to workers employed at the company for at least a year who are paid no more than $72,000 annually in 2017, adjusted for inflation in future years.
- Family and medical leave must be offered to both full- and part-time workers.
- Employers need to have a written policy that includes two weeks paid leave for family and medical leave at 50 percent or more of wages for full-time employees. And the amount must be prorated for part-time employees.
- Leave that is paid for or required under state and local law shouldn’t be considered when determining the amount of paid family and medical leave
provided by the employer.
No double dipping
Finally, if the employer claims the credit, they can’t also deduct the wages as regular business expenses. Usually, the credit will be more valuable to employers than the deduction.
The historic Tax Cuts and Jobs Act (TCJA) provides tax breaks to individuals, but also repeals or reduces certain cherished deductions. As a result, the 2017 return you file this year may be your last chance to claim these five write-offs:
1. Mortgage interest: Currently, you can deduct mortgage interest paid on a qualified residence for acquisition debt of up to $1 million and home equity debt of up to $100,000. The new law reduces the acquisition debt level to $750,000 on new loans and eliminates the deduction for home equity debt after 2017, except if the home equity loan is used to buy, build or substantially improve the taxpayer’s home that secures the loan.
2. Miscellaneous expenses: On your 2017 return, you can deduct miscellaneous expenses above 2 percent of your adjusted gross income (AGI). This includes unreimbursed employee business expenses and income-production expenses like investment and tax advisory fees. The TCJA eliminates all itemized miscellaneous deductions for 2018 and subsequent years.
3. State and local taxes: You can still deduct the full amount of your property taxes on your 2017 return, in addition to either your sales taxes or state and local income taxes. The new TCJA law effective in 2018 limits the annual deduction for state and local taxes (SALT) to $10,000.
4. Casualty and theft losses: For 2017 returns, you may deduct unreimbursed casualty and theft losses above 10 percent of your AGI, after subtracting $100 per event. The TCJA repeals this deduction, except for losses in federally declared disaster areas, beginning in 2018.
5. Moving expenses: If you moved in 2017 for job-related reasons, you may be able to deduct your moving expenses (special rules apply). However, this deduction is repealed by the new law beginning in 2018, except for expenses of active duty military personnel.
It’s 2018, so it’s too late to cut your 2017 tax bill…right? Wrong. If you qualify, you can deduct all or part of a contribution to a traditional IRA made before April 17, 2018 on your 2017 tax return. If you don’t qualify for a deduction you may contribute to a Roth IRA instead. In that case, the contribution is nondeductible.
With either type of IRA, you can contribute up to $5,500 ($6,500 if you’re age 50 or older) for the 2017 tax year.
1. Traditional IRAs: The deduction for contributions phases out if your income exceeds certain levels and you participate in a 401(k) or other employer-provided retirement plan (or your spouse participates). Distributions are generally taxable, and a 10 percent penalty usually applies to distributions before age 59½.
Contribution tip: If you file your 2017 return early enough, you can use your tax refund to fund a deductible contribution. The IRS doesn’t mind as long as the IRA money is deposited by April 17.
2. Roth IRAs: The ability to contribute to a Roth IRA phases out if your income exceeds certain levels, depending on your filing status. Unlike traditional IRAs, you can never deduct Roth contributions, but distributions after age 59½ are generally exempt from tax and the 10 percent penalty.
Although there are numerous other factors to consider, you may contribute to a traditional IRA if your goal is to reduce your 2017 tax liability, while you may prefer a Roth IRA if your goal is to secure tax-exempt payouts in retirement. No matter which approach you take, the due date for contributions for the 2017 tax year is April 17, even if you obtain a filing extension.