What Does the Tax Reform Package Mean for Your Clients?
The newly signed Tax Cuts and Jobs Act (summary of changes) overhauls the tax code and provides broad tax relief to workers, families and businesses of all sizes. A typical family of four earning $73,000 a year could receive a tax reduction of as much as $2,000. Most of the provisions contained in the tax reform bill apply to tax year 2018.
Taxpayers across the country will be filing their 2017 tax returns between now and April 17, 2018, and are now faced with what to expect and what to do with the 2018 tax changes. You can help them determine what tax reform means for them and increase your standing as your clients’ trusted advisor.
How Will Tax Withholding Impact Your Clients’ Paychecks?
Under the new rules, individual tax rates are being lowered to 10%, 12%, 22%, 24%, 32%, 35% and 37%, and these rates will be reflected in the amount of money being withheld from your clients’ 2018 paychecks, as well as what they ultimately owe Uncle Sam a year from now.
In a recently issued statement, the IRS said it intends to provide withholding guidance soon, and employers and payroll companies should implement the changes in February. So, your clients may begin seeing changes in their paychecks as early as next month. Until then, your clients’ January 2018 paychecks will look similar to their December 2017 paychecks.
Each year, federal withholding should be close to your clients’ ultimate tax liability so they don’t owe money or get a refund. The delay in new withholding guidance could make it more difficult to get it right next year.
Do Your Clients Need to File a New Form W-4 With Their Employers?
Form W-4, Employee’s Withholding Allowance Certificate, is completed and submitted to your clients’ employers so they know how much tax to withhold from pay. Typically, taxpayers would file a new W-4 when their personal or financial situation changes. A W-4 takes into account the number of people in your household, tax credits, deductions and other income, and if you have more than one job or you’re a two-earner household.
The tax reform package takes effect beginning in 2018 and contains changes to credits and deductions, such as an increased child tax credit to $2,000, an increased standard deduction to $12,000 for individuals and $24,000 for married couples, and the elimination of personal exemptions.
The IRS has indicated that the new 2018 withholding guidelines will be designed to work with an already filed W-4 and no further action will be necessary. We’ll have to wait and see if this is the case or if it’s necessary to make adjustments to a W-4.
For more questions about tax reform, visit the Intuit® ProConnect Tax Reform Resource Center.
Source: 3 Things to Know About W-4 Withholding and Tax Reform, Tax Pro Center
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