On Dec. 22, President Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA) into law, ushering in a major overhaul to current withholding methods due to the elimination or suspension of various deductions.
Recently, the Internal Revenue Service (IRS) released Notice 1036, which provides updated income-tax withholding tables for employers to use during 2018. The new tables are designed to reflect changes in tax rates and tax brackets, increased standard deductions and repeal of personal exemptions that were included in the new tax reform law.
Here is what employers need to know:
Employers should begin using the 2018 withholding rates as soon as possible, but no later than Feb. 15, 2018. While many employees can expect to see an increase in their paychecks in February, the exact timing depends on how soon their employer implements the new tables and how often they are paid.
The updated withholding tables have been implemented into PROXUS' iSolved HCM system effective Thursday, January 22. PROXUS continues to monitor legislation and will provide updates as they become available.
The new tables are designed to work with the Forms W-4 that workers have already filed with their employers. However, the IRS is working on a revised Form W-4 to reflect changes in the new law, including changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions. Until the new Form W-4 is issued, employers and employees should continue to use the 2017 Form W-4.
In addition to Form W-4, the IRS is also revising its withholding tax calculator available on IRS.gov. Revisions to the tool are expected to be completed by the end of February, and taxpayers are encouraged to use the revised calculator to evaluate their withholding once it becomes available.
On supplemental wages up to $1 million, the withholding rate has decreased from 25% to a flat 22%. On supplemental wages in excess of $1 million, the withholding rate is 37%.
Other Related Provisions
In addition to the above changes, employers should also take note of the following, which are included in the new legislation:
- Because employees will not be able to deduct moving expenses from 2018 to 2025, employers must include as wages any related reimbursements or payments made in 2018, even if the move took place in 2017.
- Employer provided Educational Assistance, Adoption Assistance and Employee Achievement Rewards were preserved in the new Law. The Work Opportunity Credit was also retained.
- Qualified Bicycle Transportation benefit of $20 per month will be eliminated.
- Tangible personal property as it relates to achievement awards will exclude cash, merchandise cards/coupons, meals and other similar items.
- Popular retirement savings options have been retained as well as HSA deductions.
- Employer deductions for entertainment, amusement or recreation will be disallowed except for 50% of food/beverage expenses associated with operating a business.
- Employers will lose the deduction for subsidizing qualified transportation benefits starting in 2018.
- Backup Withholding will be reduced from 28% to 24% on non-employee compensation where the recipient lacks a taxpayer ID#.
- The ACA individual mandate penalty – applied to those without adequate health insurance coverage under the current law – will be eliminated beginning in 2019.