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How Will Your Employees Be Impacted by TCJA?

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When employees file their taxes this year, they may see some unwelcome changes due to tax reform passed in 2018, commonly known as the Tax Cuts and Jobs Act (TCJA). On January 1, 2018, the TCJA removed the opportunity for employees to claim unreimbursed business expenses that exceed 2% of their adjusted gross income as a deduction (Schedule A and Form 2106). Employees who depended on this deduction to offset business driving expenses on their income taxes no longer have the option. For example, take an employee that drives 20,000 business miles per year in a personally-owned vehicle. Their company pays them a $500 monthly vehicle allowance to compensate the business travel costs of 20,000 miles a year. In 2017, they could claim a $3,100 deduction. But in 2018, this deduction is no longer available. Many employees will see an impact like this when they file their taxes, especially those that are not reimbursed for business mileage. In 2016, more than 5 million employees claimed this deduction on their taxes. 2 That means that many mobile workers are in for a shock when they file taxes this year. If the employer does not cover the costs of business mileage, the employee loses out. HOW WILL YOUR EMPLOYEES BE IMPACTED BY TCJA? The average deduction claimed in 2016 for unreimbursed vehicle expenses was $6,965. 1 20,000 Reimbursement based on 20,000 annual miles and a $6,000 annual allowance 2017 IRS Business Mileage Standard Mileage Expenses Annual Business Miles 53.5¢ $10,700 *$80,000 Adjusted Gross Income Unreimbursed Business Expenses Deduction in 2017 $3,100 Annual Vehicle Allowance/ Reimbursed Mileage Expenses Less 2% of Adjusted Gross Income* $6,000 $1,600 − x = − =

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