Late in 2017, the President signed into law the Tax Cuts and Jobs Act, known colloquially as the TCJA. This legislation represents the tax reform plan put forward by the Republican Party, and it is the most significant tax overhaul in more than 30 years. Here are the important 2018 tax changes for employers that we think you may need to know about.
Federal Income Tax Withholding Changes
Currently, employers are required to withhold federal income tax from the wages they pay their employees using tables and methods provided by the IRS, as well as Form W-4, which is provided by the employee. If income tax was withheld from the regular wages of the employee and supplemental wages are separately identified and do not exceed $1 million, employers may use a flat income tax rate for those supplemental wages.
The TCJA makes several changes to federal income tax withholding processes. Namely, there has been a change in individual income tax rates; the current seven individual income tax rates of 10%, 15%, 25%, 28%, 33%, and 39.6% have been changed to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If the employee’s year-to-date supplemental wages exceed $1 million, employers are required to withhold at the highest rate bracket (now 37%). Depending on your employees’ wages, this will change how you calculate tax withholding for regular paychecks. Additionally, effective through 2025, the personal exemption deduction has been suspended.
Family and Medical Leave
Currently, the Family and Medical Leave Act of 1993 requires that covered employer provide time off up to 12 work weeks for any 12-month period for a broad range of family- and medical-related reason. Generally, this legislation does not require that employee be compensated. Under the TCJA, eligible employers can claim a general federal business tax credit of 12.5% of the wages paid to qualifying employees. This tax credit is likely useful for small businesses.
Wage Advances and Repayments
Special tax rules currently apply when a taxpayer has an obligation to repay certain wage amounts received in a prior tax year. If an employee is paid under $3,000 in wages in one tax year that are repaid to the employer in subsequent tax years, the employee is allowed a credit to his or her federal taxable income. The TCJA changes this; now, all miscellaneous itemized deductions available to individual taxpayers for employee unreimbursed business expenses are disallowed entirely.
Payroll Software Can Do the Work for You
Tax tables are generally updated every year, but 2018 brought significant changes to payroll and withholding tax. Rather than relying on the IRS to disseminate the appropriate information, small business owners can invest in a semi-automated payroll software. This type of tool will automatically update tax tables, from personal allowances to the annual percentage method. In housing this information within a payroll tool, employers can bypass learning about the change and proceed right to payroll reporting. This is exactly the service AMS provides.
AMS Payroll updates state and federal tax tables as they are updated, allowing users to quickly and easily adapt to new payroll and withholding processes. The information is immediately applied to withholding calculations and reflected in paychecks, which can also be printed through the software. These figures are then stored within the system for easy quarterly and annual tax and wage reporting. If recent tax changes have you and your business struggling to keep up, AMS Payroll could be the answer you’ve been looking for.