![]() The Internal Revenue Code allows 401(k) plans to provide “hardship withdrawals” under which plan participants can take early distributions to address an immediate and heavy financial need. This change provides relief to pilots who terminate employment with an outstanding 401(k) loan balance and are required under the terms of the plan to repay the outstanding balance within the 60-day timeframe. The TCJA allows employees who terminate employment with an outstanding 401(k) loan to avoid taxation on the outstanding loan balance by rolling over the amount of the loan to an IRA or other eligible retirement plan on or before the due date for filing tax returns (including extensions). Prior to tax reform, the distribution of the unpaid balance would be treated as taxable income (potentially also triggering early withdrawal penalties) unless the pilot rolled over the amount of the unpaid balance to an IRA or other eligible retirement plan within 60 days, as with other distributions. If the pilot fails to do so, the unpaid balance is treated as a distribution. Most 401(k) plans require the pilot to repay the outstanding loan balance upon termination of employment. This rule creates issues for a pilot who terminates employment with an outstanding 401(k) loan balance. When a pilot takes a distribution from a retirement plan, the distribution is treated as taxable income (and may be subject to early withdrawal penalties) unless it is rolled over to an IRA or another eligible retirement plan within 60 days. Pilots who incur work-related moving expenses beginning in 2018 that are not reimbursed by the employer are no longer able to deduct these expenses from their federal taxes. Some pilot contracts provide that the employer pay for moving expenses, and as of 2018 these payments are treated as taxable income. Under the TCJA, both the exclusion for moving expense reimbursements and the deduction for unreimbursed moving expenses are eliminated. Moving expensesīefore 2018, employer reimbursements for moving expenses were excluded from taxable income, and unreimbursed job-related moving expenses were deductible. 1, 2018, pilots are no longer able to deduct the difference between the per diem reimbursement amount and actual business travel expenses incurred. Therefore, per diem reimbursements paid by the employer up to the federal rate are still not considered taxable income. The TCJA does not change the exclusion of per diem reimbursements from taxable income. In addition, pilots who itemized their deductions could deduct their actual business travel expenses that were in excess of any per diem reimbursements they received. Prior to the TCJA, per diem reimbursements paid to pilots by their employer that did not exceed the federal per diem rate were not treated as taxable income. This increases the tax burden for many pilots who are required to pay these costs themselves. As a result, pilots who itemize their deductions are no longer able to deduct these expenses when filing their federal taxes. ![]() The TCJA eliminates itemized deductions for ordinary and necessary business expenses paid or incurred by a taxpayer as of Jan. Ordinary and necessary business expenses for pilots include unreimbursed travel costs, union dues, pilot uniforms, and medical examinations required by the FAA. Prior to 2018, pilots who itemized their deductions could deduct ordinary and necessary business expenses from their federal taxes. ALPA members should consult a tax professional to understand how changes made by the new tax law will affect them. This article summarizes the tax reform changes made to employee fringe benefits by the TCJA and the BBA and does not discuss changes made to individual income tax rates, college savings incentives, estate planning, or corporate taxes. This law features several tax provisions that had previously been dropped from the TCJA. 31, 2025, unless Congress passes an extension.Ĭongress subsequently passed the Bipartisan Budget Act (BBA), which President Trump signed on Feb. 1, 2018, and apply to income earned beginning in the 2018 taxable year. Generally, most provisions of the TCJA took effect Jan. Fortunately, the TCJA made only modest changes to retirement benefits. It makes sweeping changes to the Internal Revenue Code in general and substantially modifies the taxation of employee fringe benefits, which is expected to significantly impact pilots. The Tax Cuts and Jobs Act (TCJA) was signed into law by President Trump on Dec. Tax Reform: How It Affects Pilots’ Employee Fringe Benefits By Dan White, Senior Benefits Attorney, ALPA Retirement & Insurance Department
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