Advisers say tax reform multiplies questions
Accountants, HR and payroll advisers seeing increase in calls about how law affects employees, company policies.
Local tax and human relations professionals are saying the biggest need following the federal tax overhaul is for enhanced communication between employers and employees.
Kellie Haines — president of Grand Rapids-based Axios HR, which provides custom HR solutions to small businesses, nonprofits and schools — said firms like hers, as well as payroll consultants and payroll processing companies, are accustomed to updating their tax tables annually, and tax reform hasn’t changed that.
“Every single year, at the end of the year, tax tables are updated in the system. From an employer standpoint, it’s more the software providers (such as ADP, Paychex, Paycor and Paylocity) having enough time to get those things tweaked and get it out to customers fast enough,” she said.
“If they couldn’t get it updated until April for some reason, the systems wouldn’t be withholding the correct amount. But all of the major companies and vendors have updated their systems.”
Things aren’t quite as straightforward from the employee perspective, and Axios HR is seeing an increase in clients calling with questions.
“The biggest impact this year is employees understanding how the changes will affect them in the future,” she said.
One example is whether an employee needs to change his or her withholding status on form W-4, which employers use to calculate how much to withhold from paychecks for federal tax. Changes in withholding elections could be necessary because of the elimination of the personal exemption and other elements of the tax overhaul.
But it will vary depending on the employee and the company, Haines said. Her firm refers clients to their accountants to determine that.
David Shymanski is a CPA and partner at Grand Rapids accounting and tax advisory firm Beene Garter.
He said many effects of tax reform won’t be felt until early 2019, which is when employees will find out how the federal tax rate changes, exemptions, $10,000 limitation of state and local tax deductions, and doubling of the standard deduction will add up on their 2018 tax bill.
“There’s a lot of things impacting individuals that aren’t specifically affecting businesses but would impact their withholding,” he said.
He said small businesses that calculate their own payroll should be prepared to amplify communication with personnel.
“If I’m a small business owner, I want to make sure I’m withholding the proper amount and not getting to the end of the year and withholding way too much or way too little,” he said.
“The employers are going to have to know what the tax rules are, so they can properly include and exclude things in income. It might take a few cycles for things to work their way out.”
Haines said her firm’s HR consultants are prepared to help educate businesses about whether they might need to change any company policies that have become outdated following the tax overhaul.
“Our HR people are going out and seeing if their (clients’) policies have to be changed and if they do, they are doing education,” she said.
Shymanski said some companies may opt to change their reimbursement policies given some deductions that were eliminated.
“From a business perspective, there’s moving or relocation expenses for employees that will no longer be deductible. They’ll have to adjust their policies on whether or not they’ll include those as taxable wages,” he said.
Other big things that might affect company policies is the elimination of transportation fringe benefits in many states, such as mass transit, bicycle and parking reimbursements — as well as perks that were formerly tax excludable, such as gift cards, sporting event tickets and employee achievement awards that now might be tax liable.
“It’s important to understand if you have employees in multiple states to understand how the state law changes will (impact you),” he said.
He said Beene Garter has experienced an increase in call volume from clients like Axios HR has.
“I think mostly we’re just fielding more questions about what’s taxable and what’s not taxable,” he said. “We take them on a one-by-one basis because every client’s different. It’s just creating a little more awareness and more work.
“My advice would be for business owners or their payroll department to get an understanding of tax law changes and to be proactive about company policies and see if any of them are contradictory to the tax law.”