Tell me the basics.
If you outsource your payroll to Heartland, there are a few changes that you’ll notice as a result of the Tax Cuts & Jobs Act (TCJA). The change generating the most interest is the impact of the tax cuts on paychecks.
The new Tax Reform Bill adjusts tax rates for most employees in the U.S. The IRS has released new tax tables for use in calculating federal tax withholding in 2018 and has issued guidance that employers should begin using the 2018 withholding tables no later than Feb. 15, 2018. Heartland Payroll updated these tax tables in late January, and clients of our service do not need to take any action to be compliant. Many employees will begin to see increases in their paychecks in February.
The new withholding tables are designed to work with the W-4 forms that workers have already filed with their employers to claim withholding allowances. This will minimize the burden on taxpayers and employers. Employees do not have to do anything at this time regarding updated W-4s.
What else is new with you, payroll?
Fringe benefit changes
Fringe benefits for qualified moving expenses and bicycle commuting costs are now considered taxable income for tax years 2018 through 2025.
Affordable Care Act (ACA)
The TCJA does not change the requirement of Applicable Large Employers to provide ACA compliant health care options to their full-time employees. Starting in 2019, however, the penalties imposed under the individual mandate for not purchasing insurance will be reduced to zero.
Supplemental rate for wages up to $1 million
The IRS has issued guidance that the supplemental tax rate for wages up to $1 million in 2018 is 22 percent, down from the 25 percent rate in 2017.
Supplemental rate for wages exceeding $1 million
Starting in 2018, withholding rates on supplemental wages exceeding $1 million have been reduced from 39.6 percent to 37 percent. These rates remain in effect through 2025.
Backup withholding rate
The backup withholding rate will be reduced from 28 percent (in effect for 2017) to 24 percent for tax years 2018 through 2025.
Whew, that’s a lot.
Yes, it is. We’ve thrown a ton at you, but don’t feel like you have to understand every single detail about the TCJA this instant. It’ll take some getting used to, but that’s what Heartland is here for. We’re committed to making sure everything runs as smoothly as possible for you and your business, and we’ll be with you every step of the way.
For additional information regarding how these changes affect your type of business, please contact your sales rep or check out the resources provided by the IRS.
The sole purpose of this article is to inform Heartland clients and merchants about the general information regarding the TCJA and is not intended as tax advice.