The Tax Cuts and Jobs Act law is now official, with the Internal Revenue Service releasing its newest tables for withholding of income taxes. Some aspects of the bill have left employers shaking their heads in regards to what it all means, and whether or not they will be affected by it. Below are some details that will clarify tax changes in 2018.
Basic Deductions Will Increase
The new law will temporarily raise the individual standardized deductions for every filing status. With this provision, the total amount for standardized deductions will be raised to $24,000 for those who are married and filing a return jointly, $18,000 for filers who are the head of their household, and $12,000 for everyone else.
The Income Tax Bracket Has Been Modified
The Tax Cuts and Jobs Act have altered the individual (non-married) tax rate. Those who earn between $9,525 and $38,700 per year will see a drop in their income tax rate from 15 percent to 12 percent. Those who make from $38,700 to $82,500 will see a reduction from 25 percent to 22 percent, those earning from $82,500 to $157,000 will see a drop from 28 percent to 24 percent, those earning from $157,200 to $200,000 would see a reduction from 33 percent to 32 percent, and those earning $500,000 or more would see a drop from 39.6 percent to 37 percent.
Tax rates for those who are married and earn from $19,050 to $77,400 dropped from 15 percent to 12 percent. Those who are married and earn from $77,400 to $165,000 experienced a reduction from 25 percent to 22 percent. Those who are married and earn between $82,500 and $157,500 would see a reduction from 28 percent to 24 percent, and married people earning $500,000 or more saw a decrease from 39.6 percent to 37 percent. Employers should begin using these tax rates by February 15, 2018 and afterward.
W-4 Exemptions Have Been Eliminated
One important change of the Tax Cuts and Jobs Act is that those paying their taxes won’t be able to get withholding allowances for their W-4s. There isn’t much employers have to do, as the newer withholding tables will work with existing W-4s and as such don’t need to be resubmitted.
The Tax Burden Has Been Reduced On Certain Businesses (Pass Through)
Partnerships, LLCs and S-Corps will be given a deduction of 20 percent for their “pass through” income. This is applicable to those in a business that is service based, with the exception of married couples who have a taxable income of $315,000 or individuals who have a taxable income of $157,500.
Deductions For Employers Providing Commuter Benefits
For employers that provide commuter benefits to their employees, for 2018 employees can deduct as much as $260 monthly in transport costs (pre-tax). However, business deductions for parking and mass transit have been eliminated. Employers that cover the transportation costs of their employees are therefore no longer guaranteed a tax break.