Client Login

Interpreting the New Tax Reform Bill

Questions & Answers
 

What does it mean for your Business?

  • Less corporate taxes
  • Lower individual tax rates
  • Some fringe benefits no longer deducible
  • Employees can drop your health plan to save money (2019)
  • Other implications
  • Nothing happens for Tax Year 2017
     

The Tax Reform Bill has passed. While the business world is digesting the 500 pages of the bill, as well as any last minute changes, there are some major areas that have been publicized. These are discussed below to help you better plan for 2018, clarify some of the rules and help you answer employee questions.

What about Taxes on your Business?

  • The new bill caps the combined income tax rates of businesses and business-owners for all C corporations and their shareholders at 36.8%, and for most pass-through personal service businesses, at 37%
  • Caps pass-through business income tax rates at 29.6% for real estate businesses, manufacturers, engineering firms and architectural firms
  • The new C corporation tax rate of 21% will apply to all personal-service business income, an important change from existing law. Please talk with your tax accountant to discuss potentially reorganizing personal service pass-through entities as C corporations to take advantage of a lower tax rate
     

What about changes to the tax tables for employees?

iSolved Payroll houses the tax rates and tables for your employees. This will be updated in the system as soon as the official rates are issued and confirmed by the government. Most employees can expect to see a tax cut, but the amount of that cut will depend on many factors. We anticipate that higher take home pay will be in paychecks beginning in Feb 2018.

Will there be new W4’s?

Yes. It may take some time for the IRS to issue these forms. These will be added to iSolved onboarding as soon as they are available. In the meantime, continue to use the existing form with new hires and existing employees. Since the standard deduction is being doubled, far fewer employees will be filing the full 1040 form & itemizing deductions. It would be best practice to have all employees review their tax setup at the end of first quarter, and to make changes, if needed, to account for this.

How does the Tax Reform Bill impact supplemental wages (i.e. bonuses & commissions)?

The supplemental wage withholding rate for supplemental wages less than or equal to $1 million, using the flat withholding method, would increase to 28% under the bill, from the current supplemental wage withholding flat rate of 25%.

Supplemental wage payments in excess of $1 million during the 2018 tax year would be subject to a reduced rate of 37% under the bill, compared to the current rate of 39.6%.

What about dependent care flexible spending accounts?

Many working parents depend on this program to save tax dollars they spend on daycare. Fortunately, this survived the tax reform axe.

Were any fringe benefits offered to employees impacted?

Yes. There are a number of things that businesses will not be able to deduct, including employee provided bike commuter benefits and relocation assistance. It may still make sense to offer these benefits to attract and retain quality employees, but you won’t be able to deduct these costs now.

How was ACA impacted? Are employees required to stay on my health plan?

The bill repeals the Affordable Care Act's individual mandate in 2019, but that's unlikely to trigger significant changes to your employer-sponsored healthcare plans. However, some employees may choose to drop coverage to save money. It is extremely important that you communicate with employees who drop company sponsored coverage that they will not be allowed back into the plan until the next open enrollment window, or unless they have a qualifying mid-year election change event (such as a birth or marriage). ACA filing rules and deadlines still remain in place as there was no change to the employer mandate as part of the reform bill.

Work Opportunity Tax Credits (WOTC)

This remains intact to spur hiring for specific groups, like Veterans, and for designated geographic (economically challenged) regions. WOTC data is collected as part of iSolved Onboarding to make sure that you can take advantage of these tax incentives and boost your bottom line.

Other Resources:

34 things you need to know about the incoming tax law; via CNN Money

How the new a tax reform bill impacts small businesses; via Inc.

New Tax Reform Bill - income tax liability calculator

  Income tax liability Calculator via The Spokesman-Review

As always, MassPay is continually monitoring changes that impact our clients and their employees and will keep you updated as new forms, rules and procedures change.

Watch this space for additional rules and clarifications surrounding the New Tax Reform Bill

Updates:

12/22/2017 - President Trump signed the bill