New Tax Legislation Has Significant Impact on Employers
In the wake of the enactment of the Tax Cuts and Jobs Act, Americans are striving to understand its implications. Employers are also impacted by the legislation and are in the midst of deciphering necessary next steps.
Bret McKitrick, Senior HR Consultant for Associated Benefits and Risk Consulting, works closely with employers, offering HR advice and insights.
Outcomes of the New Tax Law
“We have some clarity but not complete clarity,” McKitrick said. “This is sweeping legislation, sweeping change. When Congress passes a law, they then send it to the (relevant) agencies—so the Department of the Treasury and the IRS, specifically, in this case— to say ok, make this work. And that’s what the IRS is doing right now.”
Many had hoped the changes spelled out in the new legislation would translate to more take-home pay. But that’s not necessarily proving to be the case, McKitrick notes.
“Fewer withholdings doesn’t necessarily equate to less in taxes or fewer taxes,” McKitrick said. “It’s obviously all individually based. And so if an employer is not withholding as much throughout the year, (a possibility is that) the employee naturally gets that false sense of security that ‘Hey, I don’t have to pay this in taxes,’ and they may be hit with a bigger tax bill come 1040 time in 2019.”
Tax Bill Translates to Payroll Modifications
One thing for sure is that payroll changes will be in the works for employers everywhere.
“A couple of things (are at work),” McKitrick said. “Number one, if an employer outsources their payroll, the large payroll companies are on top of this, in terms of it being an automatically generated effect (and) in terms of what the withholding will look like going forward.”
It’s not as easy for smaller employers.
“(However), those employers that do it in-house have a much tougher issue, because they’re trying to interpret for themselves what these rules mean,” McKitrick said.
Other Impacts on Employers
Additionally, certain employer-provided benefits that were once deductible by employers can no longer be counted as deductions, including benefits like on-site employee gyms and moving expenses.
“There’s elimination of a few fringe benefits …,” McKitrick said. For instance, it “was a pretty common deduction that if an employer hired an employee and said ‘we’ll pay for your moving expenses up to a certain amount,’ that would be tax-free for that new employee and (would count) as a tax-deductible expense for an employer. That’s now changing and going away.”
In addition to eliminating on-site gyms and moving expenses as deductible provisions, gone too are transportation benefits, such as bicycle commuting reimbursement and provision of transit passes.
“So if you think about the idea of employee benefits … to recruit and retain employees, some of those benefits are disappearing,” McKitrick said. “Well, it’s (been) a benefit to that taxpaying employer because just like wages or salary, it’s tax-deductible for them. Now we’re taking away some of those pieces.”
One way employers are trying to remain competitive is by raising wages.
“For instance, and we’re not alone in this, (at) Associated Bank we raised all of our minimum wages to $15 an hour, beginning January 1 or with the first payroll after January 1,” McKitrick said. “It affects HR … from a wage stagnation standpoint, in terms of wages across the country. It affects employers from the idea of, ok because we’re maybe getting some different type of tax benefits and because some of the benefits maybe are going away or the tax deductibility is going away there, one thing we can do is pay people a little bit more.”
Associated Bank and its affiliates do not provide tax, legal or accounting advice. Please consult with your tax, legal or accounting advisors regarding your individual situation.