Soon after passage of the new tax reform law, the IRS announced that it is developing salary and wage tax withholding guidance to be issued sometime in January, 2018. The IRS said that use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February 2018. Until then, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems. The new withholding guidance will be designed to work with existing W-4 forms that workers have already filed. No further action by employees is necessary at this time.
Effective January 1, 2018, the backup withholding rate is reduced from 28% to 24%. Code Sec. 3406 requires payers to deduct backup withholding on certain non-wage payments, such as fees, commissions or other payments to an independent contractor for whom an 1099-MISC form was filed which had either a missing or an incorrect taxpayer identification number. Paid interest and dividends can also be subject to backup withholding without the proper taxpayer identification information.
Commuting benefits. Effective for amounts paid after Dec. 31, 2017, the new tax reform law eliminates the business income tax deduction for expenses connected with providing any qualified transportation fringe benefits to workers (parking and mass transit), except those expenses incurred for securing the safety of an employee. Workers may still use pretax dollars to deduct their contributions for the combined value of transit passes and transportation in a commuter highway vehicle (up to $260 per month in 2018) and qualified parking expenses (also up to $260 per month in 2018).
Unchanged by the Tax Cuts and Jobs Act: January 31 is the deadline for filing 2017 W-2 forms with the Social Security Administration and providing copies to employees. Forms 1099-MISC with non-employee compensation in box 7 are due to the IRS and recipients by January 31. It is also the deadline for filing the 2017 fourth quarter Forms 941, 940, 943, 944, 945, and related state payroll forms.
Stay informed. Follow PBMares as we continue to monitor the effects of the Tax Cuts and Jobs Act.
