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15
Connecticut CPA
g
March/April 2018
significant amounts of non-deductible compensation to
such employees in the future.
Qualified entity stock option and restricted stock unit
(RSU) grants Certain employees of private companies
(excluding employees who are 1% and greater owners, the
CEO, the CFO, or among the four highest compensated
officers) are able to make limited (maximum of five years)
compensation deferral elections for income tax purposes in
connection with the income taxability of stock options and/or
stock-settled RSUs, which are exercised/settled in 2018 or
after, if they are granted under an equity compensation plan
that provides for grants to at least 80% of the employer's
employees.
Widespread use of this deferral election opportunity is not
likely due to the 80% coverage requirement, as companies
have almost universally limited the grant of stock options
and RSUs to members of senior management. Further,
the illiquidity of the private company stock that would be
received in connection with these grants, combined with
the fact that the deferral would be limited to income tax
such that, upon exercise or settlement, even where the
deferral election is made, the employee may need the
funds to meet his or her FICA tax liability, will likely limit the
impact of this provision. Perhaps certain smaller and earlier-
stage companies that cannot afford to pay significant cash
compensation and instead use stock options and/or stock-
settled RSUs to attract and compensate their employees
may have a greater interest in establishing the plans needed
to provide the deferral election opportunity.
IRAs and Tax-Qualified Retirement Plans
ROTH IRA recharacterizations When an individual
converts a traditional IRA (pre-tax) into a ROTH IRA (after-
tax), the individual must pay the income taxes generated by
the conversion from pre-tax to after-tax. However, individuals
have also been able to reverse that decision, undo such a
conversion, and consequently not incur the resulting tax
liability, provided that the reversal is implemented by the
individual's tax return due date, including extensions (by the
following October 15). As of 2018, the ability to reverse the
conversion of a traditional IRA to a ROTH IRA is eliminated.
Consequently, if an individual wishes to reverse the 2017
conversion of a traditional IRA to a ROTH IRA, the reversal
must have occurred by the end of 2017 (rather than by
October 15, 2018).
Extension of the 60-day rollover period for tax-qualified
retirement plan loan offset distribution amounts permits
the amount treated as an otherwise taxable distribution
from a tax-qualified retirement plan, Section 403(b) plan, or
governmental Section 457(b) plan as the result of an unpaid
plan loan to be rolled over after the previous law's 60-day
period. This is provided the deemed distribution occurs
after 2017 and the rollover occurs on or prior to the due
date (including extensions) for filing the income tax return
for the plan participant's tax year in which the amount is
treated as distributed.
Tax-qualified retirement plans 2016 disaster relief
permits individuals having their principal residence at any
time during 2016 located in a "2016 disaster area" (i.e.,
declared as such by the president) to receive not more
than $100,000 of otherwise impermissible in-service
distributions from tax-qualified retirement plans, Section
403(b) plans, and governmental Section 457(b) plans, and,
if they are younger than age 59 1/2, without imposition of
the otherwise applicable 10% early withdrawal tax on those
amounts. Individuals receiving such distributions are able to
recontribute the amounts back to the plan (or other eligible
plan, such as an IRA or the plan of a new employer) within a
three-year period without tax. Alternatively, they can pay tax
on the unrecontributed amounts as if the distributions were
paid ratably over a three-year period. Plan amendments may
be required, and affected employers may wish to consult
with their attorneys about any necessary plan amendments
that should be adopted for this purpose.
Fringe Benefits and Family and
Medical Leave Payments
The employee moving expense deduction is suspended,
with an exception for certain moves by members of the
armed forces, for 2018 through 2025.
The employer deduction is eliminated for certain expens-
es, including:
Entertainment, amusement, or recreation expenses,
including facility expenses, even if they are business-
related (as of 2018).
Membership dues to any club organized for business,
pleasure, recreation, or other special purposes (as of
2018).
Providing qualified transportation fringes (certain parking,
transit passes, van pools, and bicycle commuting
expenses) to employees (as of 2018).
Except as necessary for ensuring the safety of an
employee, the employee's commuting expenses (as of
2018).
Providing food and beverages to employees through an
eating facility that meets the requirements for de minimis
fringes and for the employer's convenience (after 2025).
Employer reimbursements of moving expenses are fully
taxable with an exception for certain moves by members of
the armed forces.
Employer credit for compensation paid to employees
on paid family and medical leave For 2018 and 2019
only, an employer with a written policy in effect under which
full-time employees can receive not less than two weeks
u