New Tax Law Changes for 2018

By now we are all aware that there are new tax tables coming due to tax reform. While most everyone will see a difference in their paycheck by February 15, there are still some details that aren’t quite ready. As the tax law is written, there will be no personal exemptions for 2018. So, what are we supposed to do with those W-4 forms that we have from our employees?

The IRS recently released a notice with additional information regarding those W-4 forms. The notice extends the effective period of the current Forms W-4 until February 28, 2018 and does the following:

• Temporarily suspends the requirement that employees must furnish their employers new Forms W-4 within 10
of changes in status that reduce the withholding allowances they are entitled to claim;
• Extends the use of the 2017 W-4 Form until the 2018 W-4 Form is available;
• Provides that the withholding rate on supplemental wage payments is 22 percent for 2018 through 2025; and
• Provides that, for 2018, withholding on periodic payments when no withholding certificate is in effect is
based on treating the payee as a married individual claiming three withholding allowances.

Basically, it is going to take the IRS quite some time to redesign the W-4 so it reflects the changes in the new tax law, so to minimize the burden on employees and employers, the IRS and the Treasury Department designed the 2018 withholding tables to work with the Forms W-4 that employees have already furnished their employers. Once the newly designed 2018 Form W-4 is released employees will have 30 days to submit the new forms to their employers.

Tax Cuts and Jobs Act

On December 22, 2017 President Trump signed the largest income tax change in thirty years.

It is a complex bill with many changes, but for the most part taxpayers will be paying less taxes in 2018. With 3 simple examples I shall try to demonstrate the impact this new law may have on your own situation.

A single person making $50K using the standard deduction will pay $5,638.50 in 2017. Compare that to $5,223.75 in 2018 – a savings of $414.75.

A married couple filing joint return using the standard deduction with no dependents will pay $11,277.25 in 2017. Compare that to $10,447.50 in 2018 – a savings of $829.75.

Finally, a married couple using the standard deduction with 2 dependents under 17 will pay $7,732.35 in 2017. Compare that to $6447.50 in 2018 – a saving of $1,284.85.

The driving factor behind the savings is the increase in the child tax credit as well as standard deduction.  Whereas currently about 70% of taxpayers use the standard deduction, the new tax law is expected to rise this number up to 95%. An impact on states with high property and income taxes is also anticipated since the new law also dictates the limit of itemized deductions for state and local taxes for not to exceed $10K.

Ultimately, this article only covers the impact of the individual tax changes, the corporate changes are much more dramatic. Please consult a tax professional for more complete information.

Written by Michael Ericksen, WAC Solution Partners- Midwest