The new tax law: Here a glitch, there a glitch …
The Tax Cuts and Jobs Act unleashed a torrent of questions from employers regarding the payroll tax treatment of certain items, like employer-provided meals and working condition fringe benefits, which the IRS promised to answer in the 2018 edition of Pub. 15-B, Employer’s Tax Guide to Fringe Benefits.
Not so good news: New questions have arisen, which the IRS or Congress (or both) will need to address.
The TCJA changed the measure of inflation to something called the chained CPI. As a result, the maximum amount employees with family coverage under a high deductible health plan can sock away into an HSA this year decreased to $6,850, from $6,900.
Employees who have already maxed out on their HSA contributions before the IRS’ announcement must contact the financial institutions that hold their HSA accounts and withdraw that excess $50, plus interest. The excess will be taxable income to employees, but it doesn’t appear at this time that withholding is required.
Withholding on nonresident aliens
Nonresident aliens you employ have surely noticed a bigger bite out of the paychecks. That’s because the TCJA almost doubles the standard deduction, for which they don’t qualify. Employers, therefore, must add back amounts into their pay before figuring withholding. The amount added back is substantial—this year, it’s $7,850, up from $2,300.
This almost threefold increase has left some employees with $0 net pay.
The IRS is aware of the problem; it just doesn’t have a solution. The resolution of this issue may require a technical correction from Congress.
S corp declarations
Businesses have until March 15 to file Form 2553 to elect to be treated as S corps, beginning this year. If the form is filed late, S treatment begins in 2019.
Problem: The TCJA amends IRC § 199A to allow S corps and other pass through entities a 20% deduction for qualified business income. However, the criteria for taking this deduction weren’t set out in much detail in the TCJA, which leaves the IRS to interpret it.
For its part, the IRS says it will probably have something concrete by the end of June, which is too late for S corp elections for 2018. The National Society of Accountants, in a letter to David Kautter, Acting IRS Commissioner, suggests that the deadline for S elections be extended through Sept. 15.
The IRS has yet to respond to this suggestion.
Excise tax on highly paid employees
Section 13602 of the TCJA added IRC § 4960 to the tax code. Under this provision, a 21% excise tax is imposed on tax-exempt organizations that pay their five highest compensated employees more than $1 million a year. The provision is intended to hit football and other coaches at major public universities.
However, a spirited debate has broken out in the tax-exempt organization community regarding whether public universities are even covered under § 4960.
The IRS is aware of the problem, but it’s difficult right now to see how it will shake out.