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Posts Categorized / What’s New

  • May 31 / 2018
What's New

Federal Tax Reform

On December 22, 2017, President Trump signed H.R. 1, also known as the Tax Cuts and Jobs Act (TCJA), into law (Pub. L. 115-97). The TJCA, which marks the most sweeping tax changes in 30 years, will impact payroll professionals in 2018 and beyond. Most of the changes in the TJCA took effect January 1, 2018, and will remain in effect through 2025.

Tax Rates and Brackets
The TCJA retains seven tax brackets, but adjusts tax rates and taxable income levels. The tax rates are also used to determine supplemental and backup withholding rates, so those rates will also change. Here is a comparison of the 2017 and 2018 rates.

Single

2017 Tax Rate Taxable Income 2018 Tax Rate Taxable Income
10% $0-$9,325 10% $0 – $9,525
15% $9,326 – $37,950 12% $9,526 – $38,700
25% $37,951 – $91,900 22% $38,701 – $82,500
28% $91,901 – $191,650 24% $82,501 – $157,500
33% $191,651 – $416,700 32% $157,501 – $200,000
35% $416,701 – $418,400 35% $200,001 – $500,000
39.6% $418,401+ 37% $500,000+

Married, Filing Jointly

2017 Tax Rate Taxable Income 2018 Tax Rate Taxable Income
10% $0 – $18,650 10% $0 – $19,050
15% $18,651 – $75,900 12% $19,051 – $77,400
25% $75,901 – $153,100 22% $77,401 – $165,000
28% $153,101 – $233,350 24% $165,001 – $315,000
33% $233,351 – $416,700 32% $315,001 – $400,000
35% $416,701 – $470,700 35% $400,001 – $600,000
39.6% $470,701+ 37% $600,001+

Rates for Withholding on Supplemental Wages for 2018
There is a two-tiered system for withholding income tax from supplemental wages at a flat rate:

  • Optional flat rate: 22%. Because the optional flat tax rate on supplemental wages of up to $1 million in a taxable year is tied to a section of the Internal Revenue Code that is suspended for tax years 2018 through 2025 by the TCJA (§1(i)(2)), it appeared that the withholding rate would increase to 28% (from 25%). However, the IRS has confirmed the new rate is 22% (no other percentage allowed).
  • Mandatory flat rate: 37%. The mandatory withholding rate on supplemental wages exceeding $1 million in a taxable year is tied to the highest income tax rate. For 2017, the rate was 39.6%. The TCJA lowers that rate to 37% for tax years 2018 through 2025.

Backup Withholding Rate
The backup withholding rate is tied to the fourth lowest tax rate. For 2017 the rate was 28%. The TCJA lowers that rate to 24% for tax years 2018 through 2025.

Personal Exemption Elimination and Income Tax Withholding
The TCJA eliminates the personal exemption claimed by taxpayers for themselves and their spouse and dependents for 2018-2025, and nearly doubles the standard deduction in 2018 to $24,000 for married individuals filing jointly, $18,000 for head-of-household filers, and $12,000 for all others. These amounts will be adjusted for inflation beginning in 2019. This will have a profound impact on income tax withholding. Generally, the amount of income tax withholding has been based on the number of withholding allowances an employee claims on Form W-4, Employee’s Withholding Allowance Certificate. These allowances, in large part, are based on the number of exemptions claimed by the employee. The Form W-4 also allows for withholding adjustments based on estimated itemized deductions (e.g., for state and local taxes or mortgage interest) that will be affected by this legislation.

Other Areas Important to Payroll
The TCJA also affected many other areas important to payroll professionals, including the amount of wages exempt from a federal tax levy, inflation adjustments to items in the Internal Revenue Code, and fringe benefit changes affecting employees and employers.

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Provided by the American Payroll Association
  • Apr 09 / 2018
What's New

IRS Modifies Some 2018 COLAs

The IRS has announced changes to some of the previously announced 2018 cost-of-living adjustments (COLAs) [Rev. Proc. 2018-18, 2018-10 IRB 392]. The new COLA amounts reflect tax law changes created by the Tax Cuts and Jobs.

Foreign earned income exclusion
For 2018, the maximum foreign earned income exclusion amount under IRC §911(b)(2)(D)(i) is lowered to $103,900 ($104,100 previously). The maximum amount of the foreign housing cost exclusion is $14,546 ($14,574 previously).

Medical Savings Accounts
To be eligible to make contributions to a Medical Savings Account (or to have the employer make the contributions), an employee must be covered by a high deductible health plan. For 2018, a high deductible health plan is a plan with an annual deductible of $2,300-$3,450 for individual coverage (unchanged) and $4,550-$6,850 for family coverage ($4,600-$6,850 previously).
Maximum out-of-pocket expenses now can be no more than $4,550 for individual coverage ($4,600 previously) and $8,400 for family coverage (unchanged).

Health savings accounts
The maximum annual contribution to a health savings account is reduced to $6,850 ($6,900 previously) for family coverage. The other amounts are unchanged.

Adoption assistance
For 2018, the maximum amount that can be excluded from an employee’s gross income for qualified adoption expenses under an employer’s adoption assistance program is lowered to $13,810 ($13,840 previously). The amount excludable from an employee’s gross income also phases out at lower amounts of the employee’s modified adjusted gross income.

Penalties for failure to file correct information returns and to provide correct payee statements
For tax years beginning in 2018 (forms filed in 2019), the penalty amounts per return under IRC §6721, failure to file correct information returns, and the penalty amounts under IRC §6722, failure to furnish correct payee statements, will remain the same However, some of the calendar year maximum penalties have been reduced.

Courtesy of APA

  • Apr 09 / 2018
What's New

California Supreme Court Clarifies Calculation of Overtime on Flat Sum Bonuses

On March 5, 2018, in a unanimous decision, the California Supreme Court in Alvarado v. Dart Container Corporation of California clarified how employers must calculate the regular rate of pay for purposes of compensating an employee for overtime when the employee earns a flat sum bonus in a single pay period.
The regular rate of pay is used to calculate overtime compensation and includes the employee’s base rate of pay, and other remuneration such as piecework earnings, commissions and bonuses. When a flat sum bonus is paid, an employer must recalculate the regular rate of pay for the time period over which the bonus was earned taking into account the hourly value of the flat sum bonus. In California, the formula for dividing the flat sum bonus into an hourly amount has been unclear, with three potential divisors:

  1. The number of hours the employee actually worked in a pay period, including overtime hours (the federal formula and the one used by the employer in Alvarado),
  2. The number of non-overtime hours the employee worked during the pay period, or
  3. The number of non-overtime hours that exist in a pay period, regardless of the number of hours the employee actually worked.

In Alvarado, the court held that employers, when calculating the hourly value of the flat sum bonus during a single pay period, must divide the flat sum bonus amount earned in the pay period by only the non-overtime hours worked by the employee. This decision breaks away from the federal formula and identifies a single proper method for employers to use in recalculating the regular rate. The court, however, expressly limited its decision to flat sum bonuses (i.e., fixed attendance bonus), so this rule does not necessarily apply to the calculation of other types of non-hourly compensation such as commissions, production bonuses, or piecework bonuses that may vary with number of hours worked.
The court also rejected a request by defendant Dart Container for a prospective-only application of the court’s interpretation. Four justices filed a concurring opinion criticizing the California Division of Labor Standards Enforcement for not issuing a clarifying regulation for over two decades, leaving employers with doubt about how to meet their statutory responsibilities, and allowing employees to receive less overtime pay than they were due.
What Employers Should Know Now
Employers must now calculate overtime for employees who earn a flat sum bonus during a single pay period by dividing the total compensation earned by the non-overtime hours worked in that pay period.  Employers who pay flat sum bonuses should review their pay practices to ensure compliance with this formula.
Article from:  https://www.businessmanagementdaily.com/

  • Mar 06 / 2018
What's New

2018 Pension Plan Limits Not Affected by Tax Reform Law

The IRS has announced that the Tax Cuts and Jobs Act’s (TCJA; Pub. L. 115-97) new formula for calculating inflation adjustments under the Internal Revenue Code (IRC) using the Chained CPI-U do not affect the tax year 2018 dollar limitations for retirement plans the agency released last October. The IRS announced limitations for tax year 2018 in IRS Notice 2017-64

The Treasury is required to annually adjust dollar limitations on benefits and contributions under qualified retirement plans for cost-of-living increases. Adjustments are made using procedures similar to those used to adjust benefit amounts under the Social Security Act. Because the recently enacted TCJA made no changes to the section of the IRC limiting benefits and contributions for retirement plans, the qualified retirement plan limitations for tax year 2018 remain unchanged.

The IRC does specify that contribution limits and income thresholds related to Individual Retirement Arrangements (IRAs) are to be adjusted annually using procedures that are used to make cost-of-living adjustments that apply to many of the basic income tax parameters. Although the TCJA changed how these adjustments are made, after taking the applicable rounding rules into account, the previously announced amounts for 2018 related to IRAs also remain unchanged.

  • Mar 06 / 2018
What's New

IRS has released the 2018 Form W-4

The IRS has released the 2018 Form W-4, Employee’s Withholding Allowance Certificate, and an updated version of its Withholding Calculator. Both the form and the calculator have been revised to reflect changes in the tax law made by the Tax Cuts and Jobs Act (Pub. L. 115-97). On February 28, the IRS released the 2018 Form W-4, Employee’s Withholding Allowance Certificate, and its updated Withholding Calculator. Both the form and the calculator have been updated to reflect changes in the tax law made by the Tax Cuts and Jobs Act (Pub. L. 115-97). Now that these tools are available, the IRS is suggesting that employees do a “Paycheck Checkup,” to check that they are having the correct amount of tax withheld from their paycheck.

Revised Form W-4

The new instructions explain how employees can claim exemption from withholding; suggest that employees use the tax calculator if they have a complex tax situation; and provide additional guidance to filers with multiple jobs or a working spouse, nonwage income, or are nonresident aliens.

The three worksheets used to determine the number of allowances to claim – Personal Allowance Worksheet; Deductions, Adjustments, and Additional Income Worksheet; and the Two-Earners/Multiple Jobs Worksheet – have all been updated. For instance, the Personal Allowance Worksheet includes information on the child tax credit and the credit for other dependents.

Withholding Calculator

In a press release announcing the release of the 2018 Form W-4 and the Withholding Calculator, IRS Commissioner David Kautter explained the importance of using these tools. “Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation,” he said. “Taking a few minutes can help taxpayers ensure they don’t have too little – or too much – withheld from their paycheck.”

By working through the questions in the calculator, employees will learn if they should make changes in their withholdings. If changes are needed, the calculator gives employees the information they need to fill out a new Form W-4.

Courtesy of APA staff.

 

  • Feb 06 / 2018
What's New

2018 Standard Mileage Rates After Federal Tax Reform

The Tax Cuts and Jobs Act (TCJA; Pub. L. 115-97) suspends the deduction for miles driven for moving purposes for tax years 2018 through 2025. This means that all job-related moving expenses paid by the employer to or on behalf of the employee are taxable, whether for mileage or any other expense. The mileage rate paid by the employer is irrelevant, except for certain moves made by members of the U.S. military, which still qualify. Previously, the IRS released the 2018 standard mileage rates in Notice 2018-3, not knowing what, if any, tax reform legislation would be enacted.

Notice 2018-3 provided the 2018 standard mileage rates: the business standard mileage rate is 54.5 cents per mile (up from 53.5 cents per mile); the standard rate for miles driven for medical purposes or qualifying military moves is 18 cents per mile (up from 17 cents per mile); and the standard mileage rate for operating a passenger car for charitable purposes, which is set by law, is 14 cents per mile (unchanged).

  • Jan 17 / 2018
What's New

CA Notice to Employees (DE 35)

The form Notice to Employees (DE 35) has been made obsolete.  Please disregard the information referenced on page 5, step 3, and page 79 of the 2017 California Employer’s Guide

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