Every year the United States’ tax landscape goes through a series of changes, with consequences for both employers and employees. While 2018 sees a number of standard annual updates to both tax and social security, new legislation - the Tax Cuts and Jobs Act - was signed into law in December 2017, and bears closer scrutiny.

Standard Annual Updates

Social Security

The Social Security Administration (SSA) has announced the following changes to US social security rates:

  • Annual Wage Limit: The Social Security Administration (SSA) has announced that the current wage base limit for Social Security/OASDI will increase from the 2017 base of $127,200, to $128,400 in 2018. Consequently, the maximum social security tax for employees in 2018 will be capped at $7,960.80 ($128,400 x 6.2%).
  • Benefits: After an increase in the Consumer Price Index, the SSA has also introduced a 2% cost of living adjustment (COLA), which will affect numerous thresholds for benefits and coverage.

Pension Plan Limits

The IRS has announced the limits for elective deferral on several pension plans:

  • 401(k), 403(b), 457 plans are increased to $18,500 (from $18,000 in 2018).
  • The Catch-up Pension Plan limit (for employees 50 years of age and older) remains unchanged at $6,000.
  • Voluntary salary reductions for Flexible Spending Arrangements (FSA) have been increased to $2,650 (from $2,600 in 2017).

Standard Mileage Rates

In 2018, the standard business mileage rate will increase to $0.545 per mile (from the 2017 rate of $0.535 per mile). The rate applies to cars, vans, pickups and panel trucks.

Changes to US Tax Law

Federal Withholding

Following the Tax Cuts and Jobs Act, the IRS’ Federal Tax Tables suggest that most US employees will see a decrease in federal taxes withheld from their paychecks - in some cases, that decrease will be more significant than previous years.

Employers and employees should pay special attention to the following points:

  • The current version of Form W-4 will continue to be used for federal tax withholding purposes in 2018 -. For 2019, the IRS has a “Draft” version of a new Form W-4 under review. The new Form W-4 is not expected to be released until sometime later in the year.
  • Because the current Form W-4 does not specifically follow the 2018 tax changes, employees should review their current W-4: those with numerous withholding allowances should be aware of the impact on their withholding requirements for the 2018 tax year.
  • Since many state-level taxes are structured around federal income tax, it is likely that new state withholding requirements will be introduced in 2018.

Employee Moving Expenses

In 2018, employee moving expenses are no longer tax-free: the transportation of household goods, hotel stays, airfare, mileage and other expenses are now fully taxable and subject to withholding.

Qualified Transportation Fringe Benefits

Tax-free or ‘pre tax’ parking benefits, transit passes or other qualified employer-provided transportation up to $260 a month, are ‘transportation fringe benefits’ and in 2018 are no longer tax deductible expenses for employers.

Find more information about tax and social security in the United States in activpayroll’s dedicated Global Insight Guide.

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