The federal, state and local tax implications of the Tax Cuts and Jobs Act (TCJA) are far-reaching and create numerous administrative challenges for employers in the months and years ahead. Recently, CIC Plus hosted a tax reform webinar with Ernst & Young and our client Carnegie Mellon University to offer tips to employers to alleviate the administrative headaches. Read on for highlights.
First, a quick TCJA refresher:
- New Tax Brackets. The new law means new tax brackets for income tax withholding on regular wages in effect through 2025: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- Suspension of Personal Allowances. The deduction for personal allowances (previously $4,050 per allowance) is suspended through December 31, 2025; however, the IRS will not fully implement this change until the 2019 tax year, so watch for further changes.
- State Implications: Remember that some states (such as New York, Illinois, Colorado) automatically update their tax laws with changes to the Internal Revenue Code (IRC), while others (including Indiana, Ohio, Georgia) conform to the IRC as of a specific date and legislation is needed to conform to the latest version of the IRC, so there will likely be additional changes. Some states (including California) adapt to the IRC only for select provisions.
Staying Compliant in Light of Regulatory Changes
How do you manage your employees’ data and stay in compliance with all the changing regulatory updates impacting your payroll operations, while also providing the right employee experience?
Ideally, you are working with a compliance partner to help you manage all the necessary changes. To get you started, here’s an administrative checklist to consider:
1. Confirm state and local tax changes.
2. Update your system with new withholding forms.
3. Revise workflows as needed.
4. Communicate changes with employees.
5. Prepare for 2019. The anticipated new Federal W-4 will require all employees to complete a new tax form.
Tax Reform Administration: A Success Story
Carnegie Mellon University’s payroll operations faced several challenges due to their large workforce spread across national and even international locations, including significant expat and non-resident alien employee populations. They manage more than 14,000 W-2s each year.
A joint effort between the university’s Corporate Finance, Payroll and HR departments, Carnegie Mellon worked with partners CIC Plus and Workday to successfully manage the impact of the TCJA requirements. Highlights:
- After an email to employees in late February, Carnegie Mellon saw W-4 traffic increase, with nearly 150 new W-4 forms submitted via CIC Plus.
- Given employee concerns about why the update was so late in January (due to the IRS), employee communication was key. Carnegie Mellon made sure employees were aware of the IRS withholding calculator and understood to submit a new W-4 in 2018 to avoid under-withholding.
- For 2019, Carnegie Mellon is planning for all employees to submit new W-4s. Yet the impact on payroll operations will be greatly reduced through the use of CIC Plus and Workday so they don’t anticipate needing to bring in extra staff to complete the effort.
Managing TCJA changes can be extremely complicated, but it doesn’t have to be. Learn more by listening to the webinar recording.