Tax Rates
The IRS released new income tax withholding tables on January 11 as Notice 1036- 2018 Percentage Method Tables for Income Tax Withholding. Employers are encouraged to implement the tables no later than February 15, 2018. ConnectPay’s payroll software is updated with the new rates, effective on the check date of payroll processed after Monday, January 22, 2018.
The Tax Cuts and Jobs Act (TCJA) marks the most sweeping tax changes in 30 years and will impact payroll processes throughout 2018. Employers should expect to hear from their employees, “why has my net pay changed?”
The IRS also said the new withholding tables are designed to work with the W-4 Forms that workers have already filed with their employers to claim withholding allowances. Employees don’t have to do anything at this time. The IRS plans to update the withholding tax calculator by the end of February and revise Form W-4.
The tax rates are effective after December 31, 2017. The TCJA continues to use seven tax brackets, but the sizes of the tax brackets have changed, reducing the top rate from 39.6% to 37%
| Rate | For Unmarried Individuals, Taxable Income Over | For Married Individuals Filing Joint Returns, Taxable Income Over | For Heads of Households, Taxable Income Over |
| 10% | $0 | $0 | $0 |
| 12% | $9,525 | $19,050 | $13,600 |
| 22% | $38,700 | $77,400 | $51,800 |
| 24% | $82,500 | $165,000 | $82,500 |
| 32% | $157,500 | $315,000 | $157,500 |
| 35% | $200,000 | $400,000 | $200,000 |
| 37% | $500,000 | $600,000 | $500,000 |
Backup Withholding
The backup withholding rate on certain taxable payments reported on 1099 forms when no Taxpayer Identification Number has been provides decreases from 28% to 24%.
Deductions & Exemptions
The TCJA significantly increases the standard deduction almost 50% and the suspends the deduction of personal exemptions from taxable income through 2025. Certain itemized deductions to reduce taxable income have been limited or repealed for the following items:
- Mortgage Interest on mortgages in excess of $750,000 ($375,000 for married taxpayers filing separately), plus there is no longer interest deductions on home equity loans.
- State, local, foreign income, property and sales taxes in excess of $10,000 ($5,000 for married taxpayers filing separately)
- Charitable contributions made in exchange for college athletic event eating rights
- Deduction for job-related moving expenses not paid for or reimbursed by the taxpayer’s employer
- Alimony. For post-2018 divorce decrees and separation agreements, not deductible for paying spouse; not taxable for receiving spouse.
The Affordable Care Act (ACA)
The TCJA does not change to the obligation of applicable large employers to offer ACA-compliant insurance to their full-time employees and to report on the offer. It does eliminate the individual mandate by reducing the penalty to $0 for not obtaining health insurance beginning December 31, 2018.
NOTE: For Massachusetts residents, the state will have its own enforceable penalty on certain individuals who fail to obtain coverage.
The IRS has released FAQs regarding the new withholding tables. See if your questions can be answered here
Always consult a Certified Public Accountant or tax advisor for specific tax-related questions. ConnectPay will continue keeping you informed when new forms and new tools are available.
