What are the latest developments?

The Tax Cuts & Jobs Act of 2017, which was signed into law by President Trump in December 2017, includes sharp reductions in individual income tax rates and broad changes to income tax brackets, all to take effect in January. America’s employers had to begin implementing the new law only five business days after its passing.

For obvious reasons President Trump and Capitol Hill lawmakers want taxpayers to see the benefits of the new tax reform law as soon as possible in 2018, not when they file their tax returns in April 2019. The ability for employers to execute on this is dependent on the IRS (which we further explain below), however, it will fall to payroll departments to make it all happen – and quickly!

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Employers, take note:

The IRS on Thursday, January 11, 2018 issued new income tax withholding tables that reflect new tax rates and other changes for individuals. Employers should use the updated withholding rules for 2018, putting them into effect as soon as possible but no later than Feb. 15, the IRS said. Until then, employers should continue to use the 2017 withholding tables.

The IRS noted that many employees should begin to see their take-home pay increase in February depending on how quickly their employers implement the new tables and whether they are paid weekly, biweekly, or monthly. The new withholding tables are designed to work with Forms W-4, Employee’s Withholding Allowance Certificate, that employees already have on file, so employees do not have to fill out new ones at this time. The IRS plans on issuing a new Form W-4 in the near future. It is also working on revising the withholding tax calculator available on its website, which it expects will be finished by the end of February.

The challenges for employers—and for payroll

Systems will be disrupted.

Net at Work’s Employer Solutions Team will work with you to execute these changes within your payroll system and help to keep your organization in compliance. Net at Work will be providing different levels of communications which include webinars to help keep you informed and help you develop a strategy for introducing these changes within your organization.

 A new Form W-4 will be required

One key part of the payroll withholding infrastructure, of course, is Form W-4 – the form used by employers to withhold the proper amount of federal income tax from employee pay checks. Tax reform is particularly disruptive for Form W-4 because the new law would eliminate personal exemptions. The IRS will need to completely redesign Form W-4, and consequently, employers will need to collect new W-4s from employees.

What should employers expect—and when? | What employers can do right now

There are a few things employers can do right now to prepare. First, employers need to stay informed and pay close attention to IRS pronouncements. They can expect constantly breaking news from Washington about tax reform legislation and its implementation.

Second, and equally important, employers need to make sure they have on board the people and the HCM systems that can smoothly reengineer their existing payroll systems to support compliance with the new tax withholding regime. Not only will the IRS expect employers to comply; workers will have the greatest expectations that their employers promptly will put new tax cuts into their paychecks.