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2018 Payroll & Tax Changes – What You Can’t Miss

March 02, 2018 By Amber Tenuta - Leave a comment

Payroll & TaxOctober is generally when the new rules for the upcoming year are released. However, keeping up with payroll and tax changes is, seemingly, an endless process—endless, time consuming, exhausting – but critical.

The Internal Revenue Service has released Publication 15 (Circular E), Employer’s Tax Guide for 2018, which describes, in detail, the rules for payroll and taxes. This blog serves to present some of the highlights of what is in store.

The Top Changes for 2018

Tax Brackets

This, of course, is one of the most fundamental elements that affect an employee’s paycheck. The changes are not substantial but will have their impact. Employees on salary who did not get a raise will probably pay a bit less in federal income tax in 2018 than they did in 2017.

The changes are tied to inflation, at a rate of approximately 2%.

Here are a few examples:

Year

Tax Rate

Single

Married, Filing Jointly

Married, Filing Separately

Head of Household

2017

10%

$0 to $9,325

$0 to $18,650

$0 to $9,325

$0 to $13,350

2018

10%

$0 to $9,525

$0 to $19,050

$0 to $9,525

$0 to $13,600

2017

25%

$37,951 to $91,900

$75,901 to $153,100

$37,951 to $76,550

$50,801 to $131,200

2018

25%

$38,701 to $93,700

$77,401 to $156,150

$38,701 to $78,075

$51,851 to $133,850

2017

35%

$416,701 to $418,400

$416,701 to $470,700

$208,351 to $235,350

$416,701 to $444,550

2018

35%

$424,951 to $426,700

$424,951 to $480,050

$212,476 to $240,025

$424,951 to $453,350

Standard Deductions

There are also minor increases in standard deductions for 2018, which should slightly decrease employee’s taxes:

  • Single filer – From $6,350 to $6,500
  • Married couple filing jointly – From $12,700 - $13,000
  • Head of household – From $9,350 to $9,550

Social Security Taxes

The 12.4% Social Security tax will remain the same for 2018, but the earnings cap will be increasing from by $1,500, from $127,200 to $128,700. This will incur additional Social Security tax for higher-income individuals.

Personal Exemption Allowance

Personal exemption allowance is rising $100, from $4,050 to $4,150. The impact of changes to the phase-out income allowance and complete exemption increases range from approximately $5,000 to $7,000 for wealthier taxpayers, depending on whether they are single filers, married and filing jointly or head of household.

Contributions to Retirement Funds

There is an increase of $500 allowed for employees both under and over age 50 for a 401(k).

For a Roth IRA, the phase-out for single filers will increase by $2,000 and for married couples filing jointly by $3,000. Since these contributions are made on a pre-tax basis, larger contributions decrease tax liability.

Phase-out and exemption limits for employees who have a Traditional IRA as well as access to a retirement plan at work will increase for 2018. For single filers and head of household, it will increase $1,000; for married couples filing jointly, it will increase by $2,000.

Earned Income Tax Credits

The maximum EITC for a family with three children will be increasing modestly from $6,318 to $6,444.

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Communicating Payroll Changes to Employees

Deciphering tax codes and their implications can be dizzying, and most people are more interested in the impact to their paycheck than in the actual rules. To help mitigate the “What??!!” factor, we recommend three actions you can take:

  1. Send out an introductory letter that lets employees know there have been changes.
  2. If the payroll statement looks different or has different language on it, create an infographic that maps such changes.
  3. If there are enough queries from employees to warrant it, hold one or more briefings to answer specific questions.

Managing the Payroll and Tax Changes for 2018

If you have been administering all this manually, you know how much work it will be. Add to that the fact that manual entry of such changes is error-prone, and you simply cannot afford to miss anything or make a mistake; the potential consequences for both your company and your employees are too great.

The solution is a robust, reliable, automated payroll management system.

EPAY Systems provides accurate, detailed, automated updates for all changes in tax codes and handles:

  • Payroll processing
  • Tax filing
  • W-2s
  • Garnishments
  • Instant gross-to-net
  • General ledger interface

In addition, EPAY can handle all your human capital management functions, from start to finish, for one monthly charge, including:

  • Recruiting and applicant tracking
  • Onboarding
  • HR management
  • Benefits Administration
  • Time and attendance

To schedule a live demo, call us at 877-800-3729 or fill out our online form.

Filed Under: HR News, Human Capital Management, Compliance

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