Most employers had no problems meeting the February 15, 2018, deadline to begin using the 2018 federal income tax withholding tables, which reflect changes made by the Tax Cuts and Jobs Act (TCJA). However, many employees question how the TCJA will affect them.
Those are findings of a recent American Payroll Association survey of 1,000 payroll and finance professionals. The Tax Reform Membership Survey found that about 97% of respondents said they began using the tables by the February 15 deadline. Nearly 84% of participants said that the tax law didn't place any additional burden on year-end processing. Almost 63% noted that they process payrolls in-house.
The annual withholding tables typically come out in December but were delayed until January 11 due to the enactment of the TCJA. Employers only had until February 15 to begin using the tables. Of the survey respondents, about 17% said they started using the tables between January 15-19, 27% started the week of January 22, and about 32% began the week of January 29.
Changes in the Law
The TCJA brings many modifications, effective Jan. 1, 2018, including:
- Lower personal income tax rates,
- Elimination of personal exemptions,
- Significantly increased standard deductions for 2018 to $24,000 for married joint-filing couples, $18,000 for heads of households, and $12,000 for others, and
- Elimination of some tax-free benefits.
On the other hand, many employees have expressed concerns about the long-term impact the law will have on their finances. Fourteen percent of employers said they received a large number of employee questions, but the majority, 61% say they received only a few inquiries. Among the most common questions were:
- How will this affect my income taxes next year?
- Will my taxes go up or down?
- Should I change my W-4?
- Will I need to complete a new Form W-4 to make sure I'm not being under withheld?
- How should I adjust my withholding allowances?
- How do I increase the withholding to avoid owing money at the end of 2018?
- Do I need to change my exemptions to match my new tax liability?
- Why is my net pay increasing?
- How will this affect the bicycle commuter benefit?
- What's the effect of moving expenses paid to a moving company?
"Input from our survey made it clear employees are worried they'll be negatively affected by the new law once tax time 2019 rolls around," said Michael O'Toole, Esq., Senior Director of Publications, Education, and Government Relations for the APA. "It will be important for employees to quickly review their withholdings once the new Form W-4 is available to make sure they are not under withholding on their federal taxes."
Reaching Out to Employees
Asked if they had been proactively communicating with employees to let them know how the TCJA could affect their paychecks, about 57% said yes, 10% said they plan to do so; 30% said no.
The APA has more than 20,000 members who represent 17,000 employers.
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