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Tag Archives: Tax Cuts and Jobs Act

IRS raises valuation limit for employer-provided vehicles

Erin Mirante0 Comment

One of the most popular fringe benefits for employees at many organizations isn’t an insurance plan or a health club membership; it’s shiny chrome and steel — a vehicle. Providing a car, van or truck that an employee can use for both work and personal purposes can attract better job candidates or just make sense practically. If your organization offers such a fringe benefit, you should know that the IRS recently updated its valuation limit for employer-provided vehicles.

Read the Notice

Generally, you must include the value of an employer-provided vehicle that’s available for personal use in an employee’s income and wages. The personal use may be valued using the cents-per-mile or fleet-average valuation rules for the 2019 calendar year.

Because of tax law changes under the Tax Cuts and Jobs Act (TCJA), the maximum dollar limitations on the depreciation deductions for passenger automobiles significantly increased and the way inflation increases are calculated changed. In Notice 2019-8, issued early this year, the IRS and the U.S. Treasury Department noted their intention to amend regulations to incorporate a higher base value of $50,000 to be adjusted annually.

Sure enough, in May the IRS issued Notice 2019-34. It provides that, for 2019, the maximum fair market value of a vehicle (including cars, vans and trucks) for use with the vehicle cents-per-mile and fleet-average valuation rules is $50,400.

Expect revisions

Because current regulations haven’t yet been updated to reflect the changes under the TCJA, the IRS provides relief to taxpayers in the form of interim guidance for 2019 in the notice. The agency (along with the Treasury Department) intends to revise the rules for the 2018 and 2019 tax years.

One example of the intended revisions addresses what an employer should do if it didn’t qualify to adopt the vehicle cents-per-mile valuation rule on the first day on which a vehicle was used by an employee for personal use because, under the rules in effect before 2018, the vehicle had an FMV more than the maximum permitted. In such cases, the employer will be allowed to first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year based on the maximum FMV of a vehicle for purposes of the vehicle cents-per-mile valuation rule.

Another intended revision noted in Notice 2019-34 will permit an employer to adopt the fleet-average valuation rule for the 2018 or 2019 tax year if the employer didn’t qualify to use the fleet-average valuation rule before January 1, 2019, because the maximum value limitation before 2018 couldn’t be met.

Rely on the guidance

Until revised final regulations are published, taxpayers may rely on the interim guidance provided in Notice 2019-34. Our firm can help you fully understand both the interim guidance and any future revisions to the rules for employer-provided vehicles. Contact us today with any questions you may have!

© 2019

Business Credit Changes

Pam Williams0 Comment

Tax Cuts and Jobs Act makes changes to the general business credit by adding a new component credit for paid family and medical leave, and changing two current component credits, i.e., the rehabilitation credit and the orphan drug credit.

First, the Tax Cuts and Jobs Act introduces a new component credit for paid family and medical leave, i.e. the paid family and medical leave credit, which is available to eligible employers for wages paid to qualifying employees on family and medical leave. The credit is available as long as the amount paid to employees on leave is at least 50% of their normal wages and the leave payments are made in employer tax years beginning in 2018 and 2019. That is, under the Tax Cuts and Jobs Act, the new credit is temporary and won’t be available for employer tax years beginning in 2020 or later unless Congress extends it further. For leave payments of 50% of normal wage payments, the credit amount is 12.5% of wages paid on leave. If the leave payment is more than 50% of normal wages, then the credit is raised by .25% for each 1% by which the rate is more than 50% of normal wages. So, if the leave payment rate is 100% of the normal rate, i.e. is equal to the normal rate, then the credit is raised to 25% of the on leave payment rate. For purposes of the credit, the maximum leave allowed for any employee for any tax year is 12 weeks.

Eligible employers are those with a written policy in place allowing

  1. Qualifying full-time employees at least two weeks of paid family and medical leave a year, and
  2. Less than full-time employees a pro-rated amount of leave.

Qualifying employees are those who

  1. Have been employed by the employer for one year or more, and
  2. In the preceding year, had compensation not above 60% of the compensation threshold for highly compensated employees under the qualified retirement plan rules.

Paid leave provided as vacation leave, personal leave, or other medical or sick leave is not considered family and medical leave.

Second, the Tax Cuts and Jobs Act changes the rehabilitation credit for qualified rehabilitation expenditures paid or incurred starting in 2018 by eliminating the 10% credit for expenditures for qualified rehabilitation buildings placed in service before 1936, and retaining the 20% credit for expenditures for certified historic structures, but reducing its value by requiring taxpayers to take the credit ratably over five years starting with the date the structure is placed in service. Formerly, a taxpayer could take the entire credit in the year the structure was placed in service. A transition rule is also provided for certain buildings owned or leased at all times on and after Jan. 1, 2018.

Third, the Tax Cuts and Jobs Act also makes significant changes to another component credit of the general business credit, i.e., the orphan drug credit for clinical testing expenses for certain drugs for rare diseases or conditions. For clinical testing expense amounts paid or incurred in tax years beginning in 2018, the former 50% credit is cut in half to 25%. Taxpayers that claim the full 25% credit have to reduce the amount of any otherwise allowable deduction for the expenses regardless of limitations under the general business credit. Similarly, taxpayers that capitalize, rather than deduct, their expenses have to reduce the amount charged to a capital account. However, the Tax Cuts and Jobs Act gives taxpayers the option of taking a reduced orphan drug credit that if elected allows taxpayers to avoid reducing otherwise allowable deductions or charges to their capital account. The election for the reduced credit for any tax year must be made on a tax return no later than the time for filing the return for that year (including extensions) and in a manner prescribed by IRS. Once the reduced credit election is made, it is irrevocable.

I hope this information is helpful. If you wish to discuss any of these credits in more detail and the options you may have for your business, please contact our office.