Employee Benefits

Review your employee benefit offerings to ensure they continue to maximize potential tax breaks, while providing benefits that attract and retain qualified employees.

Tax Credits for Small Business Retirement Plans

Small business retirement plan tax credits can be as much as $5,000 for three years. This credit gives small business owners an incentive to provide access to a retirement plan for their employees. For businesses that enroll new hires, another $500 in tax credits is automatically available each year for up to three years.

The maximum auto-enrollment contribution for the first year of employment is 10% of compensation. Employees must have the choice to opt out of auto-enrollment. After the worker’s first year, the safe harbor plans can automatically increase employee contributions up to a maximum of 15% of compensation. Again, employees must have the option of opting out. Additionally, you now have until the due date for your company’s tax return filing to establish a plan and claim the credit for the previous year. This gives you more time to provide your employees with a profit-sharing contribution.

Qualified Retirement Plan Offset

If a loan is not repaid, the plan may provide that the account balance is reduced or offset by the unpaid portion of the loan. The plan loan offset amount is the outstanding balance. A plan loan offset amount is treated as an actual distribution for rollover purposes. If the plan loan offset is due to termination of the plan or severance from employment, an employee has until their federal income-tax due date, including extensions, for the taxable year in which the offset occurs to come up with and roll over the offset amount.

Qualified Plan Limits

The annual compensation limit for retirement accounts under Sections 401(a) (17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) was $330,000 in 2022. In 2023, the limit jumps to $345,000.

ESOPs

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period is $1,380,000 in 2024. The dollar amount used to determine the lengthening of the five-year distribution period is $275,000 in 2024.

Multiple Employer Plans

Employers of all sizes can collaborate and open “pooled plans” or Multiple Employer Plans (MEPs). You need not show a common interest to do so.

Be Aware of Plan Compliance Penalties

Fines and penalties for non-compliance with ERISA requirements have increased annually, ranging from a few hundred dollars to a six-figure fine. Work with a compliance professional to ensure you don’t trigger penalties or fines.

Student Loan Payments

To help attract new employees, consider implementing a qualified education assistance program to pay a portion of their student loans as part of your benefits package. Now, through 2025, you can make payments of up to $5,250 a year in student loan payments for each employee and receive a tax deduction for the payment. This amount is excluded from employees’ income, so it’s tax-free to the employee.

Under a new law in 2024, you can offer matching 401(k) contributions to employees based on their repayment of student loans. Participation is voluntary, and employees must opt in.

W-2 Employer FMLA Tax Credit Extended

Through 2025, employers who provide some paid family or medical leave can claim a credit ranging from 12.5% to 25% of eligible wages paid, depending on the employee’s wages. For 2024, that income limit is $93,000.

Taxable Fringe Benefits

Generally, you must report the value of benefits you provide to your staff as employees’ taxable income—unless explicitly excluded by the IRS. This includes certain employee discounts on goods or services, parking subsidies of up to $280, and company services at cost. They also include modest holiday gifts, minimal personal use of office equipment, and even occasional company parties. The value of more substantial benefits, such as personal use of a company car or country club membership, also must be included in taxable income.

Flexible Spending Accounts

You can allow employees to carry over any unused flexible spending or dependent care account monies as of December 31, 2023 to be used in 2024. Typically, these accounts are “use it or lose it” with no rollover provisions. In 2024, you may allow employees to contribute up to $3,200 to a health FSA.