The Tax Cuts and Jobs Act (TCJA) signed into law by President Donald Trump is the most sweeping tax reform the United States has seen in three decades and has a significant impact on payroll tax withholding, according to NMU Human Resources. Most of the changes took effect Jan. 1, 2018, and remain in effect through Dec. 31, 2025. Human Resources provided these notable changes of TCJA, most of which are temporary for 2018-2025:

·       Maintains seven tax brackets but reduces the rates to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The size of the tax brackets has also changed.

·       Nearly doubles standard deduction to $12,000 for single taxpayers and $24,000 married taxpayers filing jointly.

·       Repeals and limits certain itemized deductions.

·       Eliminates the deduction for personal exemptions.

·       Increases the child tax credit from $1,000 to $2,000 per qualify child under the age of 17 and increases the phase-out income threshold.

·       Creates a $500 nonrefundable credit for other qualifying dependents (e.g., children who are 17 or older but qualify as dependents).

·       Employer-provided, job-related moving expenses are no longer excluded from income.

The IRS released new tax withholding tables in mid-January that employers must implement no later than February 15. The new tax withholding tables will be reflected in NMU employee paychecks received on February 8. The withholding tables are designed to work with the existing W-4 forms to minimize the burden to taxpayers and employers. The IRS is currently working to update its tax withholding calculator and a revised W-4 by the end of February. The calculator will reflect changes in available itemized deductions, the increased child tax credit, the new family credit, and the repeal of the dependent exemptions. All taxpayers are strongly encouraged to review their withholding once these new tools are available. Employees can find this tool on the Human Resources website once it becomes available.

Employee’s are responsible to ensure their tax withholding will be sufficient to meet their tax liability in order to avoid under withholding could result in a potential underpayment penalty. Married couples where both working spouses claim “Married” on their W-4s should pay particularly close attention as the Married tax withholding tables incorporates the full $24,000 married filing jointly standard deduction. In other words, the “Married” status on the W-4 assumes that only one spouse is working. There is an option to claim “Married, but withhold at the higher Single rate” on the W-4. Those who previously itemized deductions should also pay close attention to their withholding as less than 10% of taxpayers are expected to be able to itemize in 2018. Employee’s are encouraged to consult their tax adviser regarding their personal tax situation.