On December 22, 2017, Congress enacted the Tax Cuts and Jobs Act (TCJA) (H.R. 1; Pub L. 115-97). The legislation has been widely described as the most sweeping change to the federal tax system since the Tax Reform Act of 1986. As a result, the IRS estimates that it will update hundreds of agency forms and publications throughout 2018, including Publication 15-A (Employer’s Supplemental Tax Guide) and Publication 15-B (Employer’s Tax Guide to Fringe Benefits). While many of the provisions of the TCJA impact only corporate filings, some primary changes for payroll include:
- Suspension of individual personal exemptions from 2018 through 2025.
- Increase in the standard annual deduction amounts for all taxpayers.
- Revised individual tax brackets.
- Reduction in the optional flat withhold rate for supplemental wage payments.
- Elimination of nontaxable employer reimbursements for moving expenses.
To help spread the word and to ensure accurate withholdings for 2018, the IRS has created an updated withholding calculator as well as a dedicated webpage for agency guidance on tax reform. The IRS encourages all taxpayers to complete a “paycheck checkup” as early in the tax year as possible. The checkup works best if you have a copy of last year’s federal return on hand. The IRS specifically recommends this checkup for those who have any of the following circumstances:
- Two-income families.
- Work two or more jobs or who only work for part of the year.
- Claim the child tax credit.
- Have older dependents, including children age 17 or older.
- Itemized deductions in 2017.
- Have high incomes and more complex tax returns.
- Had large tax refunds or large tax bills for 2017.
Paycor is compliant with the requirements of the Tax Cuts and Jobs Act, and we have seamlessly incorporated the legislative changes into our system. However, those system updates do not automatically mean that an employee has the appropriate amount of federal tax withheld for his or her specific situation. Individuals must let employers know if they want to change their withholding amounts. Paycor’s Perform allows revisions to an employee’s personal exemptions, and the addition of a flat dollar amount for federal withholding, at any time. We encourage our clients and their employees to use the IRS calculator and complete the paycheck checkup as soon as possible to determine if withholding changes are needed.
Having too little tax withheld can mean a large tax bill down the road. Similarly, for those who anticipate having a large refund, there are advantages to getting more money in a paycheck now rather than waiting for a refund later. Completing the IRS paycheck checkup can help ensure the most accurate withholding in this year of significant tax change. As the IRS recommends in its social media campaign, “the earlier you check, the more time there is for withholding to take place evenly.”
To learn how Paycor can help your organization adapt and stay ahead of what’s next, start a conversation today with one of our expert solutions consultants.
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