Tax and payroll experts have been saying that February and March would be the time employees began asking questions about the GOP tax overhaul. If your payroll department has not started getting questions yet, buckle up. You should start fielding them within the next few weeks.
How staff members answer the questions will partly determine how well employees understand the practical implications of tax reform. If staff members do not know the answers, they should by no means make something up. It is better to tell employees you don't know than mislead them with inaccurate information.
Here are the most important tax overhaul questions employers can expect to hear from their workers:
Is this small increase all I get?
Numerous analyses of the GOP tax bill indicate that the average American worker will benefit significantly in the long term. In the short term though, increased take-home pay for some employees may be negligible. Be prepared to field questions about take-home pay bumps.
For example, you may have workers who only receive an additional $20 per week. That doesn't seem like much until you realize that it adds up to over $1,000 per year. As time goes on, the cumulative benefits of tax overhaul will translate to more money in the worker's pocket.
Do I need to fill out a new W-4?
Though much confusion remains about the W-4 at the employer level, most employees are not going to need to submit a new form this year. New W-4's will be required in 2019 to accommodate the elimination of personal exemptions. But that is something to be tackled next year.
Will my tax refund be bigger this April?
Expect questions about tax refunds in the coming months. Unfortunately, the average American does not understand the U.S. income tax system as well as he or she could. Many don't realize that the tax refund they may receive in April is related to taxes paid last year.
In short, no one's refund will be any bigger this year as a result of the tax law. Depending on withholding and information supplied on the new W-4, tax returns may be bigger or smaller next year. But this year's tax returns are based solely on the amount of income tax paid in 2017.
Do I still have to buy health insurance?
Another misconception of the tax overhaul is found in the individual mandate of the Affordable Care Act. Yes, the tax law did eliminate that mandate. However, it is not effective until 2019.
By the time the tax plan made it to Congress, open enrollment for health insurance had been open for weeks. Congressional leaders could not eliminate the mandate for 2018 without causing a big problem for people who had already enrolled in their 2018 health insurance plans. Thus, they delayed the repeal for a year.
In a nutshell, employees are still subject to the individual mandate through 2018. They are still required to have qualifying health insurance under the law. The good thing for employees here is that the IRS is not likely to enforce the mandate in its final year.
Regardless of how any of us personally feels about the tax overhaul, it is now the law. Employees are going to start asking questions in the coming weeks, so it pays for your payroll department to be ready to answer them. Giving employees accurate information is the best way you can help them understand how tax reform applies to them.