Tax Cuts and Jobs Act

Which Employee Benefits Survived Recent Tax Legislation and Which Disappeared Forever?

Earmark Team · February 5, 2026 ·

Picture an HVAC technician standing in a Florida hardware store, personal credit card in hand, about to purchase a part needed to complete an air conditioning repair. It’s a routine moment that plays out thousands of times daily across the country: an employee spending personal funds on a legitimate business expense. But what happens next determines whether that simple transaction remains a straightforward reimbursement or transforms into unexpected taxable income.

This scenario is part of the final installment of the Tax in Action podcast’s three-part series on fringe benefits. In this episode, host Jeremy Wells, EA, CPA, completes his comprehensive discussion of IRC Section 132 benefits by looking at the remaining four fringe benefit categories and tackling the often-misunderstood topic of accountable plans.

The timing couldn’t be better. The Tax Cuts and Jobs Act of 2017 initially suspended many traditional benefits through 2025. Now, the One Big Beautiful Bill Act has made those restrictions permanent. And ir’s crucial for tax practitioners to understand these changes.

The Legislative Wrecking Ball: What’s Gone and What Remains

Before advising clients on fringe benefits, practitioners need a clear picture of what recent legislation has taken off the table permanently.

No Qualified Transportation Benefits Deductions for Employers

The qualified transportation fringe once covered four benefit categories:

Transportation in a commuter highway vehicle
Transit passes
Qualified parking
Qualified bicycle commuting reimbursement

For employers in major cities, these benefits were a meaningful way to help employees manage commuting costs.

That’s all changed now.

The Tax Cuts and Jobs Act disallowed the employer deduction for these benefits from 2018 through 2025, with one narrow exception: employers could still deduct transportation costs provided to ensure employee safety. As Jeremy explains, this means “vehicles that need additional security, such as bulletproof glass or a driver, a chauffeur that is trained in defensive driving techniques”—not typical small business scenarios.

The One Big Beautiful Bill Act made this disallowance permanent under IRC Section 274(a)(4).

But there’s a crucial nuance: the employee exclusion still exists for most of these benefits. Employees can still receive transit passes or qualified parking tax-free, within the limits in Treasury Regulation Section 1.132-9. The employer just can’t deduct the cost anymore. This creates an awkward situation where “there’s really not a strong incentive for the business to provide that fringe benefit,” Jeremy notes.

Bicycle commuting reimbursement fared worse. The Tax Cuts and Jobs Act eliminated both the employer deduction and the employee exclusion entirely. “Beginning with tax year 2018, the qualified bicycle commuting reimbursement is no longer a thing,” Jeremy confirms.

Moving Expense Reimbursements Apply Only to Military and Intelligence

Under IRC Section 217, employers used to be able to exclude from employee income the reimbursement of moving household goods and travel expenses between residences (including lodging but not meals). It was a practical benefit for companies relocating talent.

The Tax Cuts and Jobs Act suspended the exclusion and the individual’s ability to deduct moving expenses. The One Big Beautiful Bill Act made that suspension permanent, with two specific exceptions.

Members of the U.S. Armed Forces on active duty who move pursuant to a military order still qualify. Also, the One Big Beautiful Bill Act added employees or new appointees of the intelligence community, as defined in Section 3 of the National Security Act of 1947.

For everyone else, this is a benefit “we just really won’t see that much anymore,” Jeremy says.

What Benefits Survived?

Not all benefits fell victim to legislative changes. Two Section 132 benefits emerged unscathed.

Qualified Retirement Planning Services (Section 132(m)) allows employers maintaining qualified employer plans to provide tax-free retirement planning advice to employees and their spouses. Jeremy describes this as situations where “you might meet with a financial advisor” when becoming eligible for employer-sponsored retirement plans.

The benefit requires nondiscrimination. Highly compensated employees can participate only if services are available “on substantially the same terms to each member of the group of employees.”

Qualified Military Base Realignment and Closure Fringe (Section 132(n)) compensates military personnel and certain federal civilian employees for housing value declines caused by base closures. Jeremy explains how military bases drive local economies, and when they close, “selling a house could be pretty difficult.”

The Defense Department’s Homeowners Assistance Program provides three payment scenarios:

Private sale: difference between 95% of prior fair market value and actual selling price
Government acquisition: greater of 90% of prior value or mortgage payoff
Foreclosure: payment directly to lienholder

The program is run by the U.S. Army Corps of Engineers and is currently limited to wounded, injured, or ill soldiers and their surviving spouses.

Achievement Awards and the Gym Membership Myth

Beyond Section 132, two benefit categories generate frequent questions (and misconceptions).

Specific Rules for Achievement Awards

Employee achievement awards survived legislative changes intact. Employers can provide tax-free awards for length of service and safety achievements, but the rules are rigid.

Safety achievement awards cannot go to “a manager, administrator, clerical employee, or other professional employee.” Jeremy clarifies the recipient must be “someone that is actually in a line of work within that company where safety could be an issue.” For example, awards can go to workers on factory floors or construction sites, but not office workers.

No more than 10% of eligible employees can receive safety awards annually.

Length of service awards require at least five years of employment. Jeremy notes these are “usually ten, 15, 20 years” in practice.

For both categories, the awards must meet the following requirements:

It must be tangible personal property (such as the “stereotypical gold wristwatch”)
It cannot be cash, cash equivalents, vacations, meals, lodging, event tickets, or securities
The award must involve a “meaningful presentation,” such as a sort of ceremony or all-hands meeting
The award cannot create conditions suggesting disguised compensation

There are also dollar limits to keep in mind. The award value is limited to $1,600 per employee per year for qualified plan awards, and $400 for non-qualified awards. A qualified plan must be written and not discriminate toward highly compensated employees.

Athletic Facilities: The Question That Won’t Die

Jeremy addresses a common question from self-employed clients: “How do I let my business write off my gym membership?”

But gym memberships are inherently personal expenses, and therefore not deductible.

The athletic facilities benefit under IRC Section 132(j-4) requires the facility be “owned or leased and operated by the employer” for the “substantially exclusive use” of employees, spouses, and dependent children.

The following absolutely do not qualify:

Gym memberships
Country club memberships
Personal trainers
Any fitness program open to the public

Jeremy sympathizes with self-employed clients who want to look good for their clientele, but wanting doesn’t make it deductible. The only path requires the business to literally own or operate the gym itself.

The Three-Requirement Test for Accountable Plans

When employees spend their own money on business expenses, accountable plans determine whether reimbursements are tax-free or taxable wages.

The Employee’s Dilemma

IRC Section 62(a)(1) creates a problem. Employees cannot deduct business expenses from their gross income. The Tax Cuts and Jobs Act suspended the old miscellaneous itemized deduction (subject to 2% of AGI), and the One Big Beautiful Bill Act made the exclusions permanent.

Returning to Jeremy’s HVAC technician example, “They get to a site, they are ready to make the repair, but they’re missing a part.” The technician buys it with personal funds. Without proper reimbursement, “this was not a personal expense. This was a business expense. The employee should expect to be reimbursed.”

Three Requirements, Zero Flexibility

Treasury Regulation 1.62-2 establishes three criteria for accountable plans. Miss any one, and “allowances, advancements and reimbursements paid under a non-accountable plan have to be included in the employee’s gross income.”

Requirement 1: Business Connection

The expense must be “ordinary and necessary for the employer” and incurred “in connection with the performance of services as an employee.”

Jeremy warns against payments made “regardless of whether the employee actually incurs or is reasonably expected to incur bona fide employee business expenses.” Those payments automatically fail the test.

Requirement 2: Substantiation

For general expenses, employees must provide documentation “sufficient to enable the payer to identify the specific nature of each expense.” Vague terms like “miscellaneous business expenses” don’t qualify.

For Section 274(d) expenses (travel, meals, vehicle use), strict rules require:

Dates and durations
Locations and distances
Business purpose
Identity of individuals involved

Jeremy emphasizes “receipts or contemporaneous logbooks” as the standard.

Requirement 3: Return of Excess

When providing advances, employers must get back any unsubstantiated amounts. Jeremy gives a simple example: “You give an employee $100 to drive across the county” but receipts total $40. “The employee needs to return the additional $60.”

A safe harbor exists if the company provides quarterly statements showing advances versus substantiated amounts and gives employees 120 days to substantiate or return the excess.

The Cascade Effect of Failure

Revenue Ruling 2006-56 contains a harsh rule. If an arrangement “routinely pays allowances in excess of the amount substantiated without requiring actual substantiation” or repayment, “all the payments, not just the excess, but all payments” become taxable wages.

The Recharacterization Trap

“An arrangement that characterizes taxable wages as nontaxable reimbursements or allowances doesn’t satisfy the business connection requirement,” Jeremy points out, emphasizing a critical limitation.

This comes up frequently with S-corporation shareholder-employees who engage advisors mid-year. “We can’t go back in the past and look at that and try to recharacterize some of those wages. That is not allowed,” Jeremy explains.

Who’s Excluded

Independent contractors fall outside accountable plan rules entirely. Jeremy clarifies that reimbursements “need to be included in the gross income that’s reported as payments to that independent contractor” on Form 1099-NEC. The contractor then deducts the expense themselves.

Partners in partnerships create a gray area. “I don’t really see a case for using accountable plans for partners in partnerships,” Jeremy says. Instead, handle reimbursements through the partnership agreement, with unreimbursed expenses deducted on page two of Schedule E.

Protecting Clients from Costly Mistakes

The fringe benefit rules have permanently changed, and the remaining benefits require careful implementation. As Jeremy concludes, employers must understand the rules “whenever they provide any sort of benefit or compensation to employees that they want to be deductible and/or excludable.”

Accountable plans are a critical mechanism for separating tax-free reimbursements from unexpected wage income, but the three requirements don’t allow for partial compliance.

Practitioners must know what’s permitted and work to correct persistent misconceptions. Gym memberships don’t become deductible because clients want them to be, and companies can retroactively reclassify wages.

The stakes justify the diligence. Every employer who mishandles these benefits creates lost deductions for the business and unexpected taxable income for employees. And nobody wants that.

This concludes Jeremy’ three-part series on fringe benefits and accountable plans. Listen to the full episode for complete details, and check out part one and part two covering qualified employee discounts, no-additional-cost services, working condition fringes, and de minimis benefits.

The Hidden Tax Trap That Turns Disaster Relief Into Taxable Income

Earmark Team · November 19, 2025 ·

When Hurricane Ida slammed into Jessica’s print shop in northern Florida, it destroyed equipment worth tens of thousands and left her building damaged. But when she claimed a casualty loss deduction, she discovered that receiving $250,000 in insurance actually created a taxable gain instead of the tax break she expected. Her (fictional) story shows how complex disaster relief provisions have become for tax professionals and their clients.

In this episode of Tax in Action, Jeremy Wells, EA, CPA, begins a three-part series on disaster-related tax provisions. This first installment focuses on casualty losses and how the rules have changed since the Tax Cuts and Jobs Act (TCJA). As Wells notes, “the world’s changing in multiple ways, and one of those ways is that we see more and more frequent big storms, earthquakes, catastrophic events, and those can have serious financial implications.”

The TCJA limited personal casualty loss deductions to federally declared disasters starting in 2018. The documentation requirements are strict. Taxpayers must file insurance claims even when they seem unnecessary. And the calculations, based on the lesser of basis or fair market value changes, can produce unexpected results when insurance enters the picture.

Understanding What Qualifies as a Casualty Loss After 2018

The Tax Cuts and Jobs Act created a two-tier system that treats personal and business casualty losses differently. Starting with the 2018 tax year, personal casualty losses are only deductible if they result from federally declared disasters. This means a house fire, a tree falling on your car, or flood damage from a broken pipe no longer qualify unless FEMA declares your area a disaster zone.

A deductible casualty loss still requires three specific criteria. First, there must be actual damage, destruction, or loss of property. As Wells explains, “theoretical losses or potential losses don’t qualify.” Second, the damage must result from an identifiable event that can be isolated from other occurrences. Third, that event must be sudden, unexpected, and unusual in nature.

The “identifiable event” requirement plays out in interesting ways. Wells shares a Tax Court case where a taxpayer successfully claimed a casualty loss for his home in a Vietnamese village that was destroyed during the war. The court ruled in the taxpayer’s favor because the North Vietnamese invasion of that specific village was an identifiable event, distinct from the broader, years-long conflict.

But not all disasters qualify. When property values drop due to fear of potential mudslides without any actual damage, no casualty loss exists. Wells notes that “even though there’s going to be a significant economic and financial impact on the taxpayer, that doesn’t actually qualify as a deductible casualty loss because there’s been no damage, destruction or loss of property directly to the taxpayer yet.”

Between personal and business losses lies a tricky middle category: activities engaged in for profit but not rising to the level of a trade or business. These might include passive real estate investments or limited partnership interests. Courts consider whether the taxpayer’s main goal was economic profit independent of tax benefits. They also consider factors like the taxpayer’s expertise, reliance on qualified advisors, and success in similar ventures.

The insurance claim requirement often surprises taxpayers. Congress stated that choosing not to file an insurance claim doesn’t create a casualty loss. Instead, it represents “the taxpayer’s personal decision to forgo making a claim against the insurance company.” This means you must file a timely insurance claim to qualify for any casualty loss deduction, even for minor damage where you’d rather not involve your insurance company.

Calculating Losses When Insurance Changes Everything

The basic formula seems simple: take the lesser of your adjusted basis or the change in fair market value, then subtract any insurance or reimbursement received. But each part carries hidden complexities that can dramatically change the outcome.

Jessica’s case shows how insurance can create unexpected results. Her building had a $200,000 adjusted basis, but insurance paid her $250,000. That created a $50,000 gain. Her equipment, with a $50,000 basis but only $30,000 fair market value when destroyed, generated a $30,000 loss. The net result? A $20,000 taxable gain reported on Form 4797, despite her business suffering major damage.

Revenue Procedure 2018-08 provides safe harbors for establishing fair market value when formal appraisals aren’t possible. Wells explains you can use repair costs as evidence if the repairs meet four criteria:

they’re necessary to restore pre-casualty condition,
not excessive,
only fix casualty damage, and
don’t increase value beyond pre-casualty levels.

Getting two qualified repair estimates and using the lower figure offers another safe harbor. But Wells acknowledges the challenge: “It might be difficult to get two different companies or crews to come by and give you estimates” when entire regions need repairs after a disaster.

For personal casualties, the calculation gets even tougher. After determining the basic loss, you reduce it by $100 per event, then reduce the net amount by 10% of adjusted gross income. Wells shares his experience with Florida clients: “It’s entirely possible after the netting of gains and losses, then the reduction by $100, then the reduction by 10% of adjusted gross income, they don’t really see much of any tax effect. And that can be frustrating and disappointing.”

The increased standard deduction under the Tax Cuts and Jobs Act adds another hurdle. Since personal casualty losses become itemized deductions, many taxpayers see no benefit even after suffering significant losses. A couple with $100,000 AGI suffering $20,000 in casualty losses might receive no tax benefit at all after the reductions and standard deduction comparison.

Business casualties avoid these personal loss limitations but face their own issues. Form 4797 captures these transactions and might trigger depreciation recapture, converting expected capital treatment into ordinary income. Mixed-use property requires careful allocation between personal and business portions.

Documentation and Timing: Making the Right Moves

The essential documentation includes several key items. First, you need the cost or adjusted basis for every damaged property. Next, you need fair market value immediately before and after the casualty, although Wells notes “people don’t usually see, for example, a hurricane is about to strike and then go hire an appraiser.” Insurance policies and filed claims are mandatory. For personal losses, you also need the FEMA declaration number.

A valuable option allows taxpayers to claim casualty losses from federally declared disasters on the prior year’s return. For example, if disaster strikes in 2023, you have until October 15, 2024, to elect to claim that loss on your 2022 return, potentially getting a refund much sooner. Wells explains this involves filing an amended return with Form 4684, marking the special election box.

Form 4684 splits casualty losses into two sections. Section A handles personal property with its various reductions and thresholds. The FEMA declaration number goes above line one as proof of deductibility. Section B streamlines business and income-producing property calculations.

Wells emphasizes the importance of cloud storage, especially for firms in disaster-prone areas. “A lot of firms in these disaster prone areas have had to deal with storms hitting and losing their clients’ records.” He strongly recommends digitizing records and backing them up to the cloud.

The timing rules mean casualties are deductible in the year they occur, regardless of when repairs happen. But this creates challenges. How do you prove repair costs for work not yet done? Deadline postponements in disaster areas offer some relief, but you might need to file extensions to gather proper documentation.

Key Takeaways for Tax Professionals

The casualty loss rules have become more restrictive and complex since 2018. Personal losses rarely generate meaningful deductions outside federally declared disasters. Insurance payments can turn apparent losses into taxable gains. And the requirement to file insurance claims even when you don’t plan to pursue them catches many taxpayers off guard.

Preparation is essential for taxpayers and their advisors in disaster-prone areas. Maintain cloud-based records of all property basis and insurance coverage. Document property condition periodically with photos. Understand which events typically qualify for federal disaster declarations in your region. And prepare clients for the possibility that insurance proceeds might create tax liabilities.

Wells, speaking from experience in Florida, observes that hurricanes “don’t happen all the time, but they happen every now and then and they’re becoming more frequent and more powerful.” This reality makes understanding these provisions essential for tax professionals who serve clients in vulnerable regions.

Listen to the full episode to hear Wells explain all the calculations and share details that could save thousands in unexpected tax liabilities. Over the next two episodes, Wells will cover theft losses (including Ponzi schemes and cryptocurrency disasters) and involuntary conversions (which could have helped Jessica defer her unexpected gain entirely). With natural disasters increasing in frequency and severity, this series provides critical knowledge every tax professional needs before the next storm hits.