No matter where you fall on the political spectrum, 2018 will bring a new tax bill and changes to the current tax cuts. For the benefit of your company’s HR department, be aware of the financial changes coming this year. The new bill decreased the corporate tax rate from 35% to 21% and includes sweeping changes to the way offshore income, both earned and kept, is treated.
How big of an impact will these changes have on your department? Some digging within your own industry is needed to gauge how the changes will play out for your employees, but here are some notes to start you off on the right track.
In addition to the corporate side of the new tax bill, many of the major changes will involve individual income and deductions. Be prepared to have an understanding of these changes in order to answer employee questions, especially related to purchasing a home, getting married, or having a child. How will these stages impact their tax deductions and paycheck? As a part of the HR department, they will turn to you for guidance to navigate these life events and the new tax implications.
To help you navigate these changes, here are some takeaways from the new tax bill:
- Tax Brackets. Seven tax brackets will be maintained, starting at 10% and reaching 37%, for incomes above $500,000 for singles and $600,000 for joint filers.
- Corporate Tax. The corporate rate is lowered to 21%.
- Corporate Minimum Tax. The corporate alternative minimum tax is repealed.
- Individual Minimum Tax.The exemption is increased to $70,300 for singles and $109,400 for joint filers. The phase-out threshold is increased to $500,000 for singles and $1 million for joint filers.
- Expensing. Companies are allowed to fully, and immediately, deduct the cost of certain equipment purchased after September 27, 2017 and before January 1, 2023.
- Repatriation. Companies' accumulated overseas income will be taxed and held as cash at 15.5%, while non-cash holdings will be taxed at 8%.
- Pass-Through Business Income. Pass-through owners can deduct 20% from their business income, subject to limits that will begin at $315,000 for married couples, or half that for single taxpayers.
- Standard Deductions. The standard deduction is expanded to $12,000 for individuals and to $24,000 for joint filers.
- State and Local Deductions. The deduction is capped at $10,000, which could include a combination of property taxes and either sales or income taxes.
The True Impact
Changes to paid leave, fringe benefits, automation, and offshoring will have the biggest impact on both employees and employers. There are several proposals to scrap deductions for employer-involved benefits, such as transportation and relocation expenses. Without these accommodations, employers may not be able to provide these benefits, hindering expansion and hiring. However, one proposal would give employers a tax credit equal to 25% of an employee's salary if the company pays the employee during FMLA leave. Machine and offshore deductions may have the unintended effect of encouraging employers to look into moving jobs to other countries or to use automation instead of creating jobs within the United States.
The new tax bill has both advantages and disadvantages. In order to fully understand how your company will be affected, it’s important to look into these new proposals and adjust accordingly.
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