December 29, 2017
On Dec. 22 2017, President Trump signed the Tax Cuts and Job Act of 2017 (“the Act”) into law. The Act will affect how employers handle issues of tax, payroll and employee benefits beginning Jan. 1, 2018. The following is a summary of key provisions that may impact employers:
- Corporate Tax Rate. The Act changes the corporate tax rate from 35 percent to 21 percent for tax years beginning after Dec. 31, 2017. For corporations with overseas earnings, the new rates are 15.5 percent for liquid assets and eight percent for non-liquid assets. The Act also repeals the Alternative Minimum Tax for tax years after Dec. 31, 2017.
- Expensing Business Assets. The Act permits full expensing for qualified depreciable assets purchased after Sept. 20, 2017 and before Jan. 1, 2023.
- Pass-Through Deductions. Pass-through businesses (including partnerships, limited liability companies, S corporations and sole proprietorships) may apply a 20 percent deduction to their business income subject to a $315,000 limit for married couples and $157,500 limit for individuals.
- Entertainment Expenses. Deductions are no longer permitted for activities that are considered entertainment, amusement or recreations. This includes membership dues with respect to any club organized for business, pleasure, recreation or any other social purpose, even if the expenses relate to the conduct of the taxpayer’s trade or business. Food and beverage expenses may still be deducted at a rate of 50 percent.
- Employer Credit for Paid Family Leave. The Act allows eligible employers to claim a business credit for 12.5 percent of wages aid to qualifying employees taking family or medical leave when the payment rate is 50 percent of the wages normally paid. This credit is decreased by 0.25 percent for each percentage point by which the rate of payment exceeds 50 percent.
- Elimination of ACA Mandate Penalty. The Act removes the penalty currently imposed on individuals who fail to maintain minimum essential coverage. Note that this change has no effect on employers within the ACA employer mandate.
- Form W-4 Revisions. The Act changes employee withholding allowances and repeals the deduction for personal exemptions. As such, the IRS is expected to make changes to the existing W-4 Form which governs an employee’s withholding allowances. State W-4 forms may also change to reflect the changes at the federal level.Employers should be prepared for these new forms later in 2018.
Please note that this list is indicative and not-exhaustive. It is meant only as a summary of certain key provisions. Clients should perform their own due diligence in determining the specific ways in which the Act affects their business and business practices.
Additional information and the full text of the law can be found here.
For further information, please contact LaborCompliance@castandcrew.com.
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The proceeding information is provided for informational purposes only, should not be construed as or relied upon as legal advice and is subject to change without notice. If you have questions concerning particular situations, specific payroll administration or labor relations issues, please contact your counsel.
