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Taxpayers Encouraged to Get Paycheck Check Up

If it has been a while since you have looked at your pay stub or reviewed your tax withholding, stop what you’re doing and make a point to do it today.  Circumstances change and with the new Tax Cuts and Job Act (TCJA) in December 2017, there are even more pressing reasons to perform a quick paycheck review. According to the IRS, employers should encourage employees to use the new IRS withholding calculator at www.IRS.gov/w4app to make sure that their federal income tax withholding is in line with the changes made by TCIA.  The danger is that with the changes, employees may be unknowingly withholding too much or too little and will end up owing much more than they planned for 2018 income taxes.  The IRS has also released a set of special plain language Tax Reform Tax Tips, a You Tube video series and other special efforts to help taxpayers better understand the implications of the law.

Among the groups who should check their withholding are:

  • Two-income families.
  • People working two or more jobs or who only work for part of the year.
  • People with children who claim credits such as the Child Tax Credit.
  • People with older dependents, including children age 17 or older.
  • People who itemized deductions in 2017.
  • People with high income and more complex tax returns.
  • People with large tax refunds or large tax bills for 2017.

 

How does the calculator work?

The calculator asks questions about employment history including even partial year or short employment periods. If the taxpayer has more than one part-year job, the withholding calculator can account for this as well, whereas the paper W-4 worksheets do not distinguish between part and full year jobs.

 

Two-income families, multiple job holders

For individuals with more complex tax profiles, such as two or more incomes or multiple jobs, the risks of being under withheld is even greater. Users can even use the withholding calculator to enter income from multiple job or from two employed spouses. It can also ensure that taxpayers apply their 2018 tax deductions, adjustments and credits once rather than multiple times with different employers.

 

Plan for Different Standard Deductions

The TCJA nearly doubled standard deductions and changed several of the itemized deductions for 2018. Individuals who previously itemized deductions on their federal income tax filing may not be able itemize, but may find that they can take the standard deduction, further affecting how much tax payers may need to have withheld.  “With all of the changes this year, it is especially important for taxpayers to fully understand the financial impact on their federal withholding rather than waiting,” says Dave Flynn, owner of Flynn Accounting Solutions in Stoneham, MA. “There’s no reason to have an expensive surprise in next April’s tax filing, when a simple check at the IRS.gov website can help taxpayers correct their withholding amounts now,” he continues.

To make a change to the withholding now, taxpayers will need to complete a new Form W-4 Employee’s Withholding Allowance Certificate to their employer. Waiting until later in the year, means that there will be fewer pay periods remaining to make any necessary correction deductions before year end – which could seriously impact on each paycheck.  Taxpayers with even more complicated situations may want to reach out for guidance.

 

To learn more about tax planning, talk with a Professional Small Business Advisor by clicking Find an Accountant on this page.

 

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

 

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

 

 

 

The Tax Cuts and Jobs Act’s Impact on Small Business

For the first time since 1986, the U.S. Congress passed major tax changes affecting both individuals and businesses across the country. The Tax Cuts and Job Act of 2017 (TCJA) has far-reaching impact for many business types and individuals.

Business Taxes

  • The corporate income tax rate is permanently lowered from 35 to 21 percent starting in January 1, 2018.
  • Pass through businesses – A new 20 percent deduction of qualifying business income from some pass-through businesses in industries such as sole proprietorships, partnerships and S Corporations will now be available. According to the Brookings Institute, pass-through businesses, those businesses who have their income ‘pass through’ to their owners, account for approximately 95 percent of U.S. businesses, while only 5 percent are C-corporations. Previously, income for pass-through businesses was charged at the highest personal tax income rate of 39.6 percent. The new law allows for 20 percent of the pass-through to be deductible while the remainder is subject to tax at the individual marginal income tax rates to a new lower maximum of 37 percent. There are exclusions including health, law, and professional services organizations except for households with taxable income below $157,500 for single filers and $315,000 for married filers. For these filers, there is a restriction to pass one of two tests:
    • 50 percent of the wages paid by the pass-through entity; or
    • 25 percent of the wages paid plus 2.5 percent of the “tangible, depreciable property used by the pass-through entity to make income. These pass-through provisions will expire at the end of 2025.
  • AMT – The TCJA eliminates the corporate alternative minimum tax (AMT) allowing for full expensing of capital investments for the next five years.
  • Craft Beverage Modernization and Tax Reform Act – Part of the larger TCJA law, this change provides excise relief in the next two calendar years of 2018 and 2019. Brewers that produce less than 2 million barrels annually will be taxed at a rate of $3.50 per barrel on the first 60,000 barrels of beer produced, and $16 per barrel on any further barrels produced up to 6 million. This change will help to provide additional capital that previously would have been sent to the government enabling additional growth and profitability. This reduction also impacts wineries and distillers.
  • Section 179 deductions- Used for expensing capital assets for small business, the deduction thresholds have been raised from $500,000 to $1 million. Odds are most small businesses won’t be able to reinvest such a large amount of $500,000 to $1 million in capital expenditures in a single year, but the offer is nice.

Personal

  • Individual tax brackets – The Tax Cuts and Jobs Act retains the current seven individual income tax brackets, but modifies both the width and tax rates. The new brackets are reduced to 10%, 12%,22%, 24%, 32%, 35% and 37% respectively. The downside is that while these tax changes are permanent for corporate tax payers, the individual tax changes are temporary, running out in 2025. Additionally, the Tax Policy Center found that “while the average household would get a big initial cut, by 2027 households in the $50,000 to $75,000 income range would see an average increase of $30 compared with today.  Secondly, the bill is expected to add $1.4 trillion to the deficit. How will this be paid?  As mentioned by Speaker of House Paul Ryan, healthcare entitlements such as Medicare, Medicaid, and Social Security are the best way to handle the growing deficit.
  • Child Tax Credit – There is an increase in the child tax credit amount to $2,000 from the current$1,000. Families making up to approximately $400,000 will get to take the credit and more of the tax credit is refundable, meaning that families that work but don’t earn enough to actually owe federal income taxes will get a check back from the government.
  • ACA Penalty – Repeal of the individual healthcare mandate penalty for not having health insurance starting in 2019. How this will play out in uninsured Americans and increased health insurance costs down the road is yet to be seen.

 

The new tax changes did not simplify the tax code, rather it is now more complicated.  To learn more or to have your specific questions answered talk with a professional small business advisor.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

 

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.