By now, we’ve all heard the news: a sweeping tax overhaul became law officially on December 22, 2017. Accountants, lawyers, and tax experts of all stripes will be weighing in and interpreting its broad-ranging implications well into the new year, but based on what we know now, here are eight key takeaways for business leaders.
The maximum corporate tax rate will drop from 35% to 21%.
Take this time to educate employees to reevaluate their federal tax obligations. The 2017 tax withholding tables will remain in effect until the IRS releases the tax withholding tables for 2018. Once the tables are released there is a transition period to allow for programing changes to update the tax tables. (If you’re a Paycor client, you can relax: we’ll automatically update your tax tables.) Now is the perfect time to talk to your employees about their own withholdings (you can refer them to this concise rundown from USA Today and this excellent calculator from CNN).
Good news for pass-through entities, with caveats. Most businesses are pass-through entities (i.e., they’re taxed according to the owner's personal rate). Under the tax code rewrite, pass-through entities may be able to deduct up to 20% of income. Fine print: those credits will expire after 2025 and they don’t apply to professional services.
A major tax requirement of the Affordable Care Act has been scrapped, but the ACA is still here, for now. The tax bill eliminates the mandate that individuals purchase health insurance or pay a fee. That means that if you’re offering your employees self-funded health plans, you’re still on the hook for the same ACA reporting requirements. What becomes of the ACA and the long-term cost of employer-provided healthcare remains to be seen and will certainly be the subject of much discussion and analysis. But for now, it’s reporting as usual.
A shift to a “territorial” tax structure means that corporations that do business abroad will no longer be taxed by the U.S. on the profits they generate overseas.
State and local income tax (SALT) deductions are scaled back. Originally, the plan was to scrap SALT deductions entirely, but last-minute wraggling left families the ability to deduct up to a total of $10,000 in property and income taxes. This may not have an immediate effect on your business, but you’ll be hearing a lot about it’s implications on higher wage earners and high tax states and cities.
Offering employee perks is going to be more expensive. Employers used to be able to deduct 100% of the costs of providing food and beverages to their workforce, but those deductions have been slashed in half and set to expire completely by 2023.
Employee benefits are impacted. Chief among them—employers now get a tax credit of up to 25% for wages paid to employees who take FMLA leave. Some things remained the same (employer’s tuition assistance is still tax free), others got scrapped (no more deduction for mass transit and parking). For a detailed overview, check out this great article from SHRM.
For nearly 30 years, Paycor has been guiding our clients through big changes to federal, state, and local taxes as well as compliance. We do it through a combination of expert advice and smart, automatically updated Payroll software.
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Have questions regarding the new changes? Your Paycor team is here to help. If you have any concerns, reach out to your Paycor support team.
Paycor is not a legal, tax, benefit, accounting or investment advisor. All communication from Paycor should be confirmed by your company’s legal, tax, benefit, accounting or investment advisor before making any decisions.