Tax Reform Passed – What Companies Should Know
The Tax Reform Bill was passed by Congress on December 20, 2017 after much back and forth between the two houses of Congress. By and large, it seems like the Senate’s version of the bill prevailed in the Tax Cuts and Job Act. With the bill being heralded as a strong “win” for the business community, there are a few changes that companies should prepare for in response to the passing of this tax reform.
- Payroll Tax Tables are changing. Most employees will see a slightly larger number on their paychecks starting as soon as February. Employers need to make sure that their payroll software and service providers will have the new tax tables integrated properly in a short window of time. The IRS needs to provide a new tax withholding table in order for the payroll services to make the necessary changes. Expect IRS guidance to come out in January.
- Be on the look-out for a new type of W-4 form. Currently, W-4 forms ask employees how many allowances they have to take as personal exemptions. The Tax Cuts and Job Acts replaced this approach in favor of standard deductions which does not work with the current format of the W-4 form. The IRS could require all employees to complete a new W-4 form in 2018. This is a bit of a head-scratcher until guidance is issued since the law stated that the IRS and Treasury could wait until 2019 to change the payroll withholding system.
- The Corporate Tax Rate has been slashed from 35% to 21%…and that isn’t the only good news for corporations. The final version of the passed legislation left intact the Work Opportunity Tax Credit which allows employers to take a tax credit for hiring employees from eligible disadvantaged groups (veterans, SNAP and TANF recipients, felons, etc.). With businesses retaining more of their profits from the tax break, the hope is that this will in turn develop into more jobs (hence, the name The Tax Cuts and Jobs Act). Companies should not leave the Work Opportunity Tax Credit on the table as they hire employees in 2018.
For more information on payroll and the Work Opportunity Tax Credit (WOTC), please feel free to contact us.