January Government Updates
Significant Changes for Businesses with New Tax Law
President Donald Trump signed the Tax Cuts and Jobs Act (Public Law No: 115-97) on December 22, which makes major changes to the federal tax code. Given the budget constraints that lawmakers had in enacting tax reform, most of the tax changes for corporations are permanent and most of the tax changes for individuals expire and return to current law in 2026. BSCAI members should prepare now to determine what effects the changes will have on business operations.
The summary of the new law provided below by BSCAI’s government affairs staff is only a summary and should not be used as a substitute for professional accounting advice. BSCAI members are encouraged to speak with a tax advisor before making changes affecting their businesses.
Key Tax Changes for Individuals
Alternative Minimum Tax for Individuals: Retained on personal filings, but raises the AMT exemption from $86,200 to $109,400 for married filers, and increases the phase-out threshold to $1 million.
Estate Tax: Doubles the exemption amounts ($11 million for individuals; $22 million for couples) through 2025; Reverts to current amounts thereafter. Maintains stepped-up basis.
Individual Income Tax Brackets: Below are the new individual income tax rates.
|
Income Tax Rate |
Single |
Head of Household |
Joint |
|---|---|---|---|
|
10% > |
$0 |
$0 |
$0 |
|
12% > |
$9,525 |
$13,600 |
$19,050 |
|
22% > |
$38,700 |
$51,800 |
$77,400 |
|
24% > |
$82,500 |
$82,500 |
$165,000 |
|
32% > |
$157,500 |
$157,500 |
$315,000 |
|
35% > |
$200,000 |
$200,000 |
$400,000 |
|
37% > |
$500,000 |
$500,000 |
$600,000 |
Individual Mandate: Under the Affordable Care Act (ACA), individuals are required to maintain health insurance coverage or pay a fine. Repealed beginning January 1, 2019.
Medical Expense Deduction: Maintains the deduction for expenses exceeding 7.5 percent of AGI in 2018, and 10 percent beginning in 2019.
Standard Deduction: $12,000 for individuals, $18,000 for head of household, and $24,000 for married couples filing jointly
State and Local Tax (SALT) Deduction: Limits the state and local tax deduction to a combined $10,000 for property tax AND; EITHER state and local sales tax OR state and local income tax.
Key Tax Changes for Businesses
Alternative Minimum Tax for Corporations: It is eliminated.
Bonus Depreciation: Allows full and immediate expensing of short-lived capital investments for five years. Applies both to new equipment placed in service or used equipment purchased and placed in service.
Business Interest Deduction: Caps the Net Interest Deduction at 30 percent of EBITDA through 2021. Caps the Net Interest Deduction at 30 percent of EBIT starting in 2022. Businesses with average annual gross receipts of less than $25 million over a three-year period are not subject to the 30 percent limit.
Cash Accounting: Allowed for businesses with average gross receipts of less than $25 million over three-year period. Not required to keep inventories. Exempt from uniform capitalization rules.
Corporate Income Tax: Permanently reduced to 21 percent.
Net Operating Loss: Eliminates net operating loss carrybacks and limits carryforwards to 80 percent of taxable income.
Pass-Through Businesses Income: Establishes a 20 percent deduction of qualified business income from certain pass-through businesses. Specific service industries, such as law and consulting, are phased out between $315,000 and $415,000.
Sec. 179 Expensing: Limits are increased to $1 million per year with phase-out beginning at $2.5 million, indexed for inflation after 2018. Expanded to include improvements made to existing nonresidential real property including roofs, heating and air-conditioning.
IRS Publishes Updated Withholding Tables
The Internal Revenue Service (IRS) on January 11 released updated income-tax withholding tables for 2018 reflecting changes made by the Tax Cuts and Jobs Act (Public Law No: 115-97). Employers should begin using the 2018 withholding tables as soon as possible, but not later than February 15, 2018.
New withholding tables published by the IRS reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets. The tables are designed to work with the W-4 Form that workers have already filed with their employers to claim withholding allowances. Click here to view the new tables from the IRS.
Spending Talks Continue to Avoid a Government Shutdown
Lawmakers remain frustrated in reaching an agreement funding the federal government for the balance of Fiscal Year (FY) 2018 and avoid a government shutdown. FY 2018 began on October 1, but the current spending agreement only funds government programs through January 19.
Among the items that need to be resolved are possibly lifting the budget caps in place the next two years, funding for the border wall, stabilizing the market for individual health care plans, overall defense spending, disaster relief and the status of illegal immigrants who came to the U.S. when they were children. The latest speculation is that a month-long agreement will be reached while Democrats and Republicans hammer out a compromise on the most contentious issues.
Any agreement will need the support from at least nine Senate Democrats. The Republican Senate majority is now 51 to 49 following Doug Jones (D) being sworn-in. Jones won a special election in Alabama in December and replaces Luther Strange (R) who was appointed to the seat after then Senator Jeff Sessions (R) was confirmed as U.S. Attorney General.
DOL Issues Proposed Rule on Association Health Plans
The Department of Labor (DOL) has issued a proposed rule intended to expand health care coverage through association health plans, which would allow some small business to offer more affordable health care coverage to their employees. Under the proposed rule, these small business health insurance plans would not be required to cover the 10 essential health benefits—such as prescription drugs and maternity care—required by the Affordable Care Act (ACA).
However, many ACA rules would still apply to association health plans. Among the rules that would still apply, plans could not reject employers based on the health status of their workers, and individuals could not be charged different amounts based on their health. Changes included in the proposed rule would expand the definition of who can form and join an association. This would allow associations to form solely for the purpose of offering insurance and enrolling members.
NLRB Returns to Pre-2015 Joint Employer Standard
The National Labor Relations Board (NLRB) has reversed an Obama-era decision that potentially exposed employers for the labor law violations committed by their subcontractors. In a 3-2 decision, the Board stated that to be classified a "joint employer," jointly liable for labor violations, a business must have a direct and immediate connection to the employees in question.
The decision reverses a shift made by the NLRB in 2015 in the case of Browning-Ferris Industries. In that case, the NLRB said a business could be classified a joint employer even if its relationship to the employees in question were indirect.
In a statement, NLRB said in all future and pending cases, two or more entities will be deemed joint employers under the National Labor Relations Act (NLRA) if there is proof that one entity has exercised direct and immediate control over essential employment terms of another entity’s employees.