DALLAS, Jan. 12, 2018 /PRNewswire/ — Congress passed the Tax Cuts and Jobs Act (the “Act”), and it was signed into law in December 2017. The changes to the Internal Revenue Code (IRC) will be substantial. The Act, in its official electronic version, is 185 pages long. There are payroll impacts that are important to note and are summarized below.
Tax Rates and Withholding Calculations
Some of the most widely discussed changes included in the Act are the reductions in tax rates and the number of tax brackets (down to only seven in 2018). In addition, the Act increased the standard deduction to $24,000 for joint filers, $18,000 for head-of-household filers, and $12,000 for all others. However, the personal exemption is suspended until December 31, 2025. As a result, the withholding tables and resulting calculations will change, meaning your payroll system will need to be updated.
But don’t rush to make the changes! The Act provides a grace period for the Internal Revenue Service (IRS) to make changes to the withholding tables and rules. If the IRS chooses, the withholding rules in effect for 2017 may remain in effect for 2018. As of the date of this notice, all indications are that the IRS has selected that option and plans to modify the withholding tables and percentage method charts to work with the current W-4. This is a small reprieve for now, but that simply means that W-4s will need to be changed—and employees will need to resubmit them—for the 2019 tax year.
Notice 1036 should be published by the IRS in January and will provide the final set of guidelines for withholding in 2018. Those changes may need to go into effect as soon as February, so be certain to keep a look out for the Notice.
Employee Achievement Awards
The definition of “tangible personal property” for purposes of deductible employee achievement awards under IRC § 274 has changed. Under the new provision, tangible personal property cannot include cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer), or vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and any other similar items. This provision takes effect for all tax periods after December