The first few months of the new year are always a busy time for payroll professionals. Keeping up with tax and payroll regulation changes is a seemingly endless but critical process. The tax reform bill brought with it many changes that may impact your employees and payroll this year. Below is an overview of the changes made and what they mean for your payroll in 2018.
New Income-Tax Withholding Tables
On January 11, 2018, the IRS released the updated income-tax withholding tables reflecting changes made by the tax reform legislation. Employers were required to implement the new tax tables no later than February 15, 2018.
The new withholding tables were designed to work with Forms W-4 that workers had already filed with their employers. This feature helps to minimize the burden on both taxpayers and employers. Employees do not need to complete a new Form W-4 unless they wish to make a change.
On March 1, 2018, the IRS released the 2018 Form W-4, as well as the new withholding calculator, to assist employees with completing or making changes to their 2018 federal tax withholding if they wish to do so.
Social Security and Medicare Taxes
The Social Security Administration revised the 2018 wage base, which is now $128,400, up from $127,200. The tax rates for Social Security and Medicare taxes remain unchanged at 6.2% and 1.45% respectively.
The additional Medicare tax on employees earning compensation over $200,000 is also unchanged. You must withhold 0.9 percent of taxable compensation over $200,000. There is no employer match for this tax.
Supplemental Wage Rate Changes
The supplemental wage-withholding rate, which applies to non-regular wages paid by an employer, such as bonuses and commissions, was also changed. The optional flat rate for supplemental wages under $1 million during the 2018 calendar year decreased from 25% to 22%.
The supplemental wage rate for payments of more than $1 million during the 2018 calendar year was also reduced from the prior rate of 39.6% to 37% under the tax reform bill.
Fringe Benefit Changes
- Moving Expenses – no longer excludable from gross income. They are now a taxable fringe benefit subject to payroll taxes.
- Employee Achievement Awards – clarification was provided under the existing law on what is not considered “tangible personal property” and therefore, fully taxable to employees. Achievement Awards on this list include cash, cash equivalents, gift cards, vacations, theater and sports tickets, etc.
- Health Savings Accounts – contribution limits for health savings accounts increased for 2018. The maximum contribution for self-only coverage for 2018 is $3,450 and $6,850 for family coverage. The IRS reduced the family coverage limit on March 5, 2018 from an earlier published limit of $6,900. Individuals 55 and older are eligible to make an additional catch-up contribution to their HSA of $1,000.
- Qualified Small Employer HRA – the limit on payments/reimbursements for self-only coverage is $5,050 and $10,250 for family coverage. These amounts are a change from the 2017 limits of $4,950 for self-only coverage and $10,000 for family coverage.
The business-reimbursement mileage rate for 2018 is 54.5 cents per mile, which is a change from the 2017 mileage rate of 53.5 cents per mile. Reimbursements given to employees for business driving under an accountable plan up to the IRS standard mileage rate are not taxable compensation to employees or subject to payroll taxes.