For employers, managing payroll smoothly and properly is a delicate, critical matter. There may be no quicker way to turn a happy employee into a disgruntled one than by mishandling his or her paycheck (exactly why many household employers use us).
This year, employers have an additional challenge with which to contend. When Congress passed, and the President signed into law, the Tax Cuts and Jobs Act (TCJA) late last year, it meant the IRS withholding tables would have to be updated. And now they have been.
Incorporate the changes
As you may be aware, the withholding tables enable employers (or their payroll services) to determine the amount to withhold from employees’ paychecks in light of their wages, marital status and number of withholding allowances.
The revised tables reflect the TCJA’s increase to the standard deduction, suspension of personal exemptions, and changes in tax rates and brackets. The new withholding tables are also designed to work with the Forms W-4 that employers already have on file for their employees. In other words, your employees don’t need to complete any new forms or take any other action now.
Employers, on the other hand, must move to incorporate the new tables into their payroll systems as soon as possible — and no later than February 15, 2018. (Continue to use the 2017 withholding tables until you adopt the new figures.) More details from the IRS can be found in Publication 15. Of course, HomeWork Solutions clients have nothing to worry about as we ensure the tables are updated for you.
Communicate with employees
As you adopt the new withholding tables, it’s a good idea to also communicate the changes and their implications to your employees. The IRS provides an online calculator for employees to double check their withholding, it can be found here. The IRS expects to have the calculator available by the end of February 2018 (yes, after the new withholdings will need to be in place…).
The IRS expects that many working taxpayers will see increases in their paychecks after the new tables are instituted in February. But it’s possible that some of your employees could find themselves unexpectedly hit with bigger income tax bills when it comes time to file their 2018 tax returns. This is because the TCJA eliminates or restricts many popular tax breaks a lot of taxpayers have claimed on their returns in past years. In some cases, lower rates and a higher standard deduction won’t make up for the diminished breaks.
Make sure your employees are aware that it’s their responsibility to alert you, their employer, of any adjustments they’d like to make to avoid under- or over withholding of taxes from their paychecks. This is where the calculator mentioned above comes in.
Rise to the challengeGetting payroll right matters — significantly. Although the TCJA brought some potentially beneficial tax-saving opportunities for employers, it also ushered in some challenges. There is no better time than now for household employers (and financial professionals dealing with household employment) to consider outsourcing payroll and tax duties.