Tell me the basics.
If you outsource your payroll to Heartland, there are a few changes that you’ll notice or need to comply with right away with the new bill.
Employers should begin using the 2018 withholding tables as soon as possible (but no later than Feb. 15, 2018), and should continue to use the 2017 withholding tables until the 2018 withholding tables have been fully implemented.
Many employees will begin to see increases in their paychecks in February. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid—generally weekly, biweekly or monthly.
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 burden on taxpayers and employers. Employees do not have to do anything at this time regarding updated W-4s.
Corporate tax rates will be cut from 35 percent to 21 percent. This will have the biggest impact on C corporations. Additionally, the deductible amount for purchases of qualified property (machinery, furniture, computers, software and any other equipment you may use to run your business) is almost doubled.
Business owners of sole proprietorships, partnerships, S corporations, LLCs and other specified service trades/businesses who report their business income on their personal tax returns will be able to deduct 20 percent of qualified business income (QBI). If your business is qualified as a pass-through entity—and it probably is—then this portion of the TCJA is the biggest impact you’ll experience.
What the heck is QBI?
Business Insider contributor Jordan Waxman classifies QBI as “the amount of qualified income, deductions, losses and gains for a business”. However, QBI does not include certain deductions, losses, or other investment-related income or reasonable compensation for S corporations, nor does it include certain deductions, losses, guaranteed payments or other investment-related income for LLCs or partnerships. To put it plainly, QBI is the regular income earned by a pass-through entity that does not include regular expenses, wages or guaranteed payments.
Wait, ATMs are mentioned in the new bill?
Not quite. The alternative minimum tax (AMT) has been eliminated. The AMT was designed to ensure that larger businesses pay a minimum amount of taxes in addition to other fees, like the corporate tax. This is another big change that will affect C corporations, however, most small businesses were not subject to the AMT in old legislation.
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.
- Heartland 2018 Tax Reform Communication