Two 2018 Tax Law Changes: Elective and Required Withholdings

Posted by B/P News & Notes on January 30, 2018 at 12:56 PM

State and federal tax law changes are causing employees everywhere to stop and reconsider what they are seeing on their paychecks. Even if workers don't see any adjustments at all, it might be a good time to evaluate the amounts being deducted for accuracy. After all, nobody likes surprises during tax season, and next year's might be a doozy for those who don't align their withholdings to the correct expectations.

State legislatures have also given employers some work to do. Amongst the many changes in Oregon tax law, one seemingly small change, in particular, might escape notice now but cause headaches towards the end of the year. So here are a couple reasons why it might be time to take a look at those elective and required withholdings.

Are your withholdings correct?

Much has been made of not much changing as far as the revised federal tax brackets are concerned. For most people, the amount of income that will be owed to the government has shifted down just a few percentage points, meaning that any additional income found per paycheck should be modest. This has lulled many people into believing that their current withholdings should suffice throughout 2018 and put them into a familiar position at year's end.

Yet tax brackets are not by a long-shot the only modifications that were made to the tax code when Congress overhauled it late last year. A wide array of changes have taken place to personal exemptions, standard deductions, and what and how much counts for itemized deductions, among other revisions. The deductions that many people have counted on year after year may no longer bring the same degree of relief that they used to.

Complicating matters further, the IRS will not release a version of the W-4 that reflects new tax policy until later this year. This omission means that, for the foreseeable future, employers are relying on outdated tax documents for new tax requirements. Add that fact to the sweeping changes, and many employees may be spending what they should be putting aside to pay the government.

The IRS expects to make a calculator available early this year, which will allow people to validate what they owe vs. what is being withheld. Until then, it might be prudent to review that paycheck.

A new withholding for Oregon

House Bill 2017 was passed by the Oregon Legislature last year, and this statewide transit tax goes into effect starting July 1, 2018. The new tax requires employers to withhold one-tenth of one percent from employees' gross wages. That tax money will need to be reported on and remitted along with employers' quarterly tax return. Here are three interesting aspects of this tax:

  • It must be collected from the wages of all Oregon residents, regardless of where the employee performs the work. Because Oregon can't require non-Oregon employers to perform this withholding, Oregon residents working as employees outside the state will need to report and pay the tax independently.
  • It must be collected from the wages of all non-Oregon residents who perform services in Oregon.
  • Employees who aren't subject to regular income tax withholding due to high exemptions, wages below the threshold for income tax withholding, or other factors are still subject to statewide transit tax withholding.

While the practical implications of this withholding may seem quite a ways off, now might be the moment for Oregon employers, in particular, to ask how their payroll systems will be configured to handle the tax when it's time to collect and report on it. But whether you're an employee or an employer, the 2018 tax year is one in which to pay close attention to the advancing changes.

Topics: Taxes

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