With the late December tax reform bill, many employees are wondering how this will impact them in 2018. We’ve written a brief summary below of some of the frequently asked questions regarding tax reform and their impact on individuals.
The tax law won’t apply to the taxes you’re about to file for 2017. Most provisions that affect individuals and businesses take effect January 1, 2018, meaning your 2018 paychecks should see more take-home pay as soon as tax charts are updated by the IRS. If you would like to adjust your W-4 per the new tax law, you are able to do so via Stratus.hr Mobile. However, the IRS has emphasized that the new tax reform information “will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time.”
New individual tax rates go into effect January 1, 2018. These individual tax rates will sunset after 2025, meaning a new congress will need to determine whether they are extended or discontinued at that point. See the previous tax rates versus the 2018 tax rates (per the new tax reform bill) in the image on the right-hand side.
The standard deduction, or the dollar amount that can be subtracted from income before income tax is applied (for non-itemizers), jumps from $6,500 to $12,000 for single filers, and increases from $13,000 to $24,000 for joint filers.
The child tax credit doubles from $1,000 to $2,000 (up to $1,400 refundable – even if you don’t owe taxes, and depending on your earned income) per qualifying child. Learn more about the child tax credit here. There is also a new non-refundable “family” tax credit of $500 for qualifying dependents that are not children.
One major change included in the tax reform law impacts Obamacare: the individual mandate will be repealed with this new tax law as of 2019. This means persons will no longer be required to “secure health insurance or pay a penalty.” Many project this to be the official unraveling of Obamacare, as the individual mandate is a critical element to making it sustainable. (If healthy individuals will choose not to have coverage with the elimination of the individual mandate, the balance of those who are insured will tip towards those who are sick, which will increase the cost of healthcare overall.) Employers with 50+ employees still have to provide ACA- compliant health coverage and reporting requirements will remain intact.
As of December 26, 2017, the IRS issued this statement:
“We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February… Use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February. In the meantime, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems.”
For questions or concerns about how tax reform may impact you personally, please contact your tax professional.