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Federal Tax Reform

  • Posted
  • Jan 25, 2019
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Federal Tax Reform

Federal tax reform continues to be a hot topic as many changes made by the Tax Cuts and Jobs Act (TCJA; Pub. L. 115-97) continue to impact payroll professionals. Although most of the changes in the TCJA took effect January 1, 2018, they 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 also change. Here is a comparison of 2017, 2018, and 2019 rates.

Single

2017
Tax Rate
Taxable Income2018
Tax Rate
Taxable Income2019
Tax Rate
Taxable Income
10%$0-$9,32510%$0 – $9,52510%$0 – $9,700
15%$9,326 – $37,95012%$9,526 – $38,70012%$9,701 – $39,475
25%$37,951 – $91,90022%$38,701 – $82,50022%$39,476 – $84,200
28%$91,901 – $191,65024%$82,501 – $157,50024%$84,201 – $160,725
33%$191,651 – $416,70032%$157,501 – $200,00032%$160,726 – $204,100
35%$416,701 – $418,40035%$200,001 – $500,00035%$204,101 – $510,300
39.6%$418,401+37%$500,000+37%$510,301+

Married, Filing Jointly

2017
Tax Rate
Taxable Income2018
Tax Rate
Taxable Income2019
Tax Rate
Taxable Income
10%$0 – $18,65010%$0 – $19,05010%$0 – $19,400
15%$18,651 – $75,90012%$19,051 – $77,40012%$19,401 – $78,950
25%$75,901 – $153,10022%$77,401 – $165,00022%$78,951 – $168,400
28%$153,101 – $233,35024%$165,001 – $315,00024%$168,401 – $321,450
33%$233,351 – $416,70032%$315,001 – $400,00032%$321,451 – $408,200
35%$416,701 – $470,70035%$400,001 – $600,00035%$408,201 – $612,350
39.6%$470,701+37%$600,001+37%$612,351+

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%. The TCJA lowers the optional flat tax rate on supplemental wages of up to $1 million in a taxable year to 22% (no other percentage is allowed).
  • Mandatory flat rate: 37%. The TCJA lowers the mandatory withholding rate on supplemental wages exceeding $1 million in a taxable year to 37% for tax years 2018 through 2025.

Backup Withholding Rate
The TCJA lowers the backup withholding 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. For 2019, the standard deduction is $24,400 for married individuals filing jointly, $18,350 for head-of-household filers, and $12,200 for all others.

Withholding Allowance
The 2019 amount for one withholding allowance on an annual basis is $4,200.

Federal Tax Levies
The IRS has revised Publication 1494, Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income, and issued new Notice 1439, which updates the instructions for levy notices (Form 668-W).

IRS Tax Reform Implementation Office
The IRS has created the Tax Reform Implementation Office (TRIO) to develop a plan to implement the TCJA. The IRS must reprogram 140 systems and over 460 IRS forms, instructions, and publications will be created or revised.

Other Areas Important to Payroll
The TCJA also affects other areas important to payroll professionals, including: the suspension of the fringe benefit for moving expenses (except for certain military-related moves); a new employer tax credit for paid family and medical leave; and how states are reacting to the TCJA. States may revise their employee withholding allowance certificates or change which version of the Internal Revenue Code they follow.

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