Payroll administrators have already come to expect the unexpected during the holidays, with some of the most important tax and filing deadlines falling in the next few weeks. Congressional efforts to pass the most substantial tax reforms since the 1980s could make it an even more eventful time for the community.
With two competing bills in Congress, there’s a lot of confusion as to how the bills might rock the industry this holiday season. To cut through the misinformation, we’ve summed up existing laws and how the bills might change them.
Unless otherwise noted, the below changes would be effective January 1, 2018.
Personal Income Tax Brackets
As you make more money, you pay more money—that’s a simplified description of how the country’s progressive tax system works. Your annual, taxable earnings determine which bracket you fall into. Under current law, individuals are subject to one of seven tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. A full listing of those brackets and their respective incomes can be viewed here.
Paid Family Leave
While cities and states continue to enact their own local measures, the U.S. does not have a federally mandated paid family leave program. The FMLA (Family and Medical Leave Act) allows qualified individuals to 12 weeks of unpaid, job protected leave. In concurrence with tax reform efforts, Congressional lawmakers are working on a separate proposal that would shield employers from local requirements if they fulfill a set of minimum requirements.
Affordable Care Act
Existing law requires individuals to purchase health insurance or face a tax penalty. This “individual mandate” was created as part of the Affordable Care Act to keep the insurance premiums down, assuming healthy individuals would defer coverage without it. Last week, the Namely team took a closer look at how the mandate works.
To help recoup the costs of the bills’ tax cuts, a number of fringe benefits could lose favorable tax treatment. Under current law, for example, employers can give workers up to $5,250 to advance their education without counting it as taxable income. This “education assistance” fringe benefit is just one of several that are potentially on the chopping block.
The above reflects only the information that was available at press time. In other words, blink and you might miss something new.
Congress is moving towards reform at breakneck speed. In the coming weeks, lawmakers from both houses will work together to consolidate their bills into one. As compromises are made and potential changes are finalized, the Namely team will continue monitoring the status of tax reform in Washington.