The tax bill signed into law by President Donald Trump late last year will affect Loyola employee payroll, including student workers. Taxability of fringe benefits — benefits given to employees instead of salary or wages — and income tax withholding will undergo changes beginning in 2018, according to a post on Loyola’s finance blog.
Known as HR1, the new tax plan will implement the most extreme changes in the past 30 years. One of the main changes is an increase in the standard deduction rate. This means the flat rate which individuals and married couples can claim will roughly double, jumping from around $6,000 to around $12,000 for individuals, and from around $12,000 to around $24,000 for married couples.
Because the tax plan was passed near the end of 2017, the Internal Revenue Service (IRS) didn’t immediately issue a tax withholding guidance for 2018. This means the IRS didn’t provide an explanation on the changes to tax withholdings until Jan. 11, when a statement was released. Tax withholding is the amount deducted from the recipient’s paycheck.
The statement said employers must begin using the 2018 withholding tables — tools used by employers to tell exactly how much tax to withhold from paychecks — before Feb 15. These will provide new tax rates for employers and are available on the IRS website now.
“The new law makes a number of changes for 2018 that affect individual taxpayers,” the statement said. “The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets.”
Under the new law, there will still be seven tax brackets, but tax rates corresponding to each bracket will be modified. Several companies have slightly increased employee bonuses and wages as a result, CNBC reported Jan. 5.
The IRS will revise the W-4 Form, which is given to employees to ensure the correct federal income tax is being withheld, according to the statement. Employers such as Loyola will provide the revised form to its employees when it becomes available. It’s unclear as to when exactly the W-4 form will be finalized.
For both student employees and faculty at Loyola, no immediate action is required. Lawson — Loyola’s employee self-service payroll site — has been updated with the new withholding tables, according to the finance blog.
“The effort will be designed to help workers ensure that they are not having too much or too little withholding taken out of their pay,” the statement said.
Further changes to the W-4 Form are expected in 2019, according to the IRS, although the specific changes and possible impacts weren’t specified.
Jeffrey Kwall, a professor at Loyola School of Law, said the new plan will affect students and faculty most in terms of the changes to standard deductions. Kwall emphasized that these increases aren’t permanent but will be in place until at least 2025.
Kwall also explained that individuals will be able to choose between standard deductions, a flat amount that can be claimed, and itemized deductions, which offset an income and reduce the amount paid by the individual.
“[Itemized deductions] would include, among other things, interest paid on certain amounts borrowed to buy a house, it includes state taxes, and real estate taxes, and charitable contributions,” Kwall said.
Kwall said students and faculty will likely be most affected by the changes to the standardized deductions.
“What the individual would do, or what the married couple would do, is … add up their total itemized deductions and if that number is smaller than the standardized deductions, they ignore those itemized deductions and just claim the standard deductions,” Kwall said.
Kwall also recommended students stay informed on the tax bill by reading about it and consider taking taxation classes.
“It’s important for students to be aware of the tax law, the main elements of the tax law,” Kwall said. “They should read as much as they can about it because taxes are going to affect them for the rest of their lives.”
Anthony Valentino, a sophomore accounting and information systems double major, said he’s optimistic about the law’s future but said he thinks the benefits won’t be clear until the changes have fully taken effect.
“I want to wait and see what happens,” Valentino, 20, said. “Tax cuts like this can go either way obviously, the government can have less revenue, so it’s just going to depend.”
Abraham Cain, a 21-year-old political science and international studies double major, said he has concerns about how the government will manage to pay for the changes while still funding government services, such as farming subsidies and home-visit programs for single mothers.
“To offset [the cost of the changes], [money] has to come from somewhere, so all of our mandatory programs … large cuts are going to affect everyone,” Cain, a senior, said.
Because wages will likely increase short-term, Cain said people will feel “immediate gratification,” but said he thinks the benefits won’t last and the lack of spending on government programs will hurt people in the long run.