What the 2018 Tax Cut and Jobs Act Means for You and Your Tax Returns

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Pennsylvanians are rightfully concerned about the impact of the 2018 TCJA (Tax Cut and Jobs Act) “tax reform” legislation on the filing of 2018 individual tax returns. Tax filing season begins in approximately 90 days, and Brennan and Company CPA, PC is well prepared.

The enclosed tax-guide, prepared concerning the most important individual considerations of tax reform and filing your 2018 individual taxes, can help make this year’s tax filing easier.

At this same time last year our 2017 tax-guide focus was on the “what” of tax reform, as in, what is tax reform going to look like? Our 2018 focus is on the “how” of tax reform as in, how do I file my taxes now that I know what has been done? This year’s guide will attempt to answer that, “how to file” question.

Tax Withholding

The first place to commence analyzing the differences between the current tax law and the previous regime is to look at the tax withholding tables. PICPA has received requests for some specificity and detail regarding tax withholding tables.

2018

The TCJA did not greatly impact the 2018 tax withholding tables although tax rates have changed. As you have may have heard the TCJA could result in a tax reduction for most taxpayers.   However, a checkup is still necessary to verify the accuracy of the tables used in preparing your W2. The tax reduction experienced in 2018 may be short-lived and should not be anticipated for 2019.

Shown below is a 2018 withholding table and an excerpt from IRS publication 15, “How to Use the Tax Withholding Table” and a link to the IRS withholding calculator. See www.irs.gov for more details.

2018 Withholding

  1. https://taxmap.irs.gov/taxmap/pubs/p15a-011.htm#en_us_publink1000255776 (W/H Table)
  2. https://apps.irs.gov/app/withholdingcalculator/ (W/H Calculator)
  3. https://taxmap.irs.gov/taxmap/pubs/p15-015.htm#TXMP4585fa0b (Table Use)

2019

The most prominent changes to withholding occur in 2019. This is due to the upcoming changes to the Form W-4. The single most prominent change on the 2019 Form W-4 is that Line 5, “Total number of allowances you’re claiming,” is eliminated. Personal Exemptions have been eliminated.

Employees will not be required to complete a new W-4 for 2019, however, they should still consider completing the new form.

Employers will still be able to use 2018 and prior Forms W-4 for employees that don’t complete a 2019 W-4. As a result, payroll systems will need to maintain both 2018 and 2019 withholding systems.

Additional W4 changes are as follows:

New Marital Status Box – Head of Household

A third IRS withholding calculation/table will be added to correspond with this new HH marital status, in addition to the existing tables for Single and Married Filing Jointly.

New Line 5. Additions to Income

This line asks employees to enter estimated nonwage income not subject to withholding (such as interest and dividends). Previously, employees with significant nonwage income had to convert such amounts to equivalent per-payroll additional amounts to withhold. Line 5 amounts will be full-year estimates, so employer payroll systems will need to be modified to include these full-year amounts in withholding calculations.

New Line 6. Itemized and Other Deductions

Line 6 prompts employees to enter estimated subtractions to income based on expected deductions (such as state and local taxes, mortgage interest, and charitable contributions). Previously, employees needed to convert deductions into equivalent withholding allowances. Again, amounts entered will be full-year estimated deduction totals, so payroll systems will need to include full-year amounts in withholding calculations. (Note that your estimated annual deductions for these items may change as a result of tax reform –see the rest of this brochure).

New Line 7. Tax Credits

This line asks employees to enter the full-year amount of any tax credits for which they expect to qualify, such as the child tax credit. The 2017 Tax Cuts and Jobs Act significantly expanded child and dependent tax credits. Previously all tax credits were translated by employees into additional withholding allowances. With the 2019 Form W-4, full-year tax credit amounts will be directly entered into payroll systems.

Tax credits should only be entered for the highest paying job in households with multiple incomes. Taxes may be significantly under-withheld for a household if both spouses enter the full-year credit expected, resulting in a large tax amount due at year-end. Conversely, taxes may be significantly over-withheld if neither spouse enters the total tax credit amount, resulting in reduced net paychecks during the year, and a large tax refund at year-end.

Shown below are links to a copy of the new 2019 W4 (draft copy) and the IRS Tax calculator:

2019 Withholding

  1. https://www.irs.gov/pub/irs-dft/fw4–dft.pdf (W-4 New Form – Draft only!)
  2. https://apps.irs.gov/app/withholdingcalculator/ (W/H Calculator)

For more information on our payroll services or financial consulting services, call Brennan and Company CPA, PC at 215-951-5585, or fill out an online contact form today!