We connected with payroll expert Grace Ferguson to talk about the new tax bill and it's impact on employers. Grace was a payroll and HR administrator for two large organizations in the Atlanta, Georgia area. Now she's a freelance content writer that specializes in payroll, HR, benefits and labor law compliance.
Our discussion runs just under 20 minutes. You can watch it below:
Hi everybody, I am CJ Maurer. I am the director of marketing at complete payroll for those who don’t know me, and today we are doing something new, and, also, what I think is also fun. We are going to interview what we are considering a payroll expert, a payroll and HR administrator named Grace Ferguson. And we are going to talk about the new tax bill, and the potential impact that it will have on payroll professionals, and employers in general. Before we begin, Grace, first of all thank you so much for making yourself available for this. And before we get into some of the questions I will ask, could you maybe tell everybody a little bit about your background and your experience, and why we are very excited to have you on this video today.
Grace: sure. Thank you for having me. I started my payroll journey in 2000 working for a company called Benefice Corporation as a payroll specialist. And that company was responsible for overseeing dental offices in different states. And the employees of those dentist offices were actually on our payroll. And I was responsible for paying for paying those employees. That company was later bought out by Imana. I later moved on to work for a company Food and Gaz incorporated. That took petroleum distributor. They are responsible for selling oil to different gas stations, and the employees of those gas stations were on our payroll, so I was responsible for paying those employees, and, also for administering the company benefits plan. I also had to work a lot with staff accountants to make sure that the payroll taxes were accurately reported and payed. In 2009, I left the workforce. From then, I have been working as a business writer and blogger. For the past 3 years, however, I have been writing about payroll and benefits administration.
CJ: cool. I happen to find out that it is very interesting the cliff notes, Grace was in payroll administration for a number of years, and now she just writes about it, about payroll and human capital management. She is really the perfect guest to really talk about this topic, so let’s get right into it. The tax bill. Officially the tax cut and jobs act. What is it? The tax cut or cost?
CJ: in terms of its impact on employers, what is the big picture impact? How much you would explain that to somebody at a party? You don’t want to get into a lot of details, but what is the easiest way for an employer to understand this bill in terms of the impact it might have on them?
Grace: I would sum it up as having a dual effect. It affects not just the employers, but it automatically ricochets onto employees as well. So, both sides are seeing reductions in their tax rates, and they are also seeing changes in certain deductions. And whatever an employer does, because employees are so intricately involved in the company, it automatically affects them, especially if we are talking about tax bill. That is the big picture.
CJ: sure. You mentioned how both employers and employees are going to see certain deductions. What are the quickest and easiest ways that employers will see those deductions? How are they going to come through for them?
Grace: the quickest ways in taking those deductions, or how they are impacting employees?
CJ: I guess quickest is not the best term, I guess what I am trying to ask is what are the simplest/ easy to understand ways that employers can take some deductions by what was just passed in this new bill?
Grace: I think the simplest ways is that they are going to have to know what those deductions are. That is the first thing. And because we are dealing with such a comprehensive piece of legislation, probably, the best way is to get with their financial planner of CPA to find out exactly what deductions they are entitled to. Take for instance the transportation deduction that they used to be able to claim for providing employees with transit pass, parking fees. Those are gone. The only way they can take a deduction now is if they are providing the employees with transportation to ensure the employees safety in getting to work. Another example is meal, employee onsite meals. They can only take that deduction if the meal is provided at an onsite cafeteria, or eating facility. And they can only take 50 percent of that cost. So, they have to know exactly what has been cut and what has not been cut. And the best way to know is to get with their financial planner or their CPA if they don’t want to pour over the details themselves.
CJ: sure, that makes sense. Does this tax bill favor any certain type of legal business entity or another or does it depend on other factors?
Grace: well, we do see a steeper reduction for corporations. However, they are passed through entities, and they represent the largest set up companies in the US. We have more passed through entities than we have corporations. And they are all allowed to deduct 20% off of their gross income before even paying taxes on that income. Corporations, they are getting a steep reduction from 35% to 21%. So, that works out for them, but again, like I just mentioned, passed through entities are also getting 20% off. However, we can call it favorable I guess, the reduction for corporations is permanent. However, for passed through entities, that 20% deduction expires in 2025. So, that is a little imbalanced there. But they do have 8 years to take that 20% deduction.
CJ: ok that is good. What are the some of the things that are changing the most as a result of this tax bill?
Grace: aside from those 2 things, corporations and passed through entities, I would say the individual tax rates. Employees going to see, not going to see it is actually happening right now, there is 1 to 4 % drop in most of the tax rates. For example, the highest tax brackets up 39.6% has been dropped to 37%. So, for most tax brackets, there is a 1 to 4 % reduction on the rate. Also, the personal exemption, this is big, is gone. These are exemptions that employees used to claim on their W4 forms. You take one deduction for your spouse, or 2 for your children, your dependence. Those personal exemptions are gone, but they have been replaced with a double up of the standard deduction. So, it is kind of like a wash, where `the standard deduction has been doubled from 6000 to 12000. But the personal exemptions which used to be, I think, a little bit over 4000 per person is gone. So, those are 2 major things for employees. The reduction on the individual rates, and the personal exemptions being gone. And for employers, the deduction in the passed through entities, the 20% that they can take, and the corporations, their rates have been slashed from 35% to 21%.
CJ: wow! That is a pretty good comprehensive overview. Now let me ask you, are they anything of note that are staying the same, that is worth paying attention to?
Grace: yes 2 things. In my opinion, I believe that they are most significant than anything else to employers in terms of changes. And that is pretax contribution limits. If you have a 401 k for that plan, before the law was passed, they used to be some talks about the pretax contribution limits being slashed to 25 hundred. However, the bill did not touch that at all. So now, employees, with the traditional 401 k, can put aside up to 8500 in pretax money in their traditional 401k. The second thing that has stayed the same is the affordable care act for employer. As you know, the individual mandate has been appealed, effective 2019. However, for employers, nothing has changed. Employers are still going to need to provide if their applicants are large employers. They are still going to need to provide minimum essential coverage that is affordable and that meets the minimum essential coverage. They still going to have to make sure that the different versions of form 1094 and 1095 are accurately filled out, that employers are receiving their forms on time. So, 401k contributions and affordable care acts, those are the two biggies that have stayed the same for employers.
CJ: thank you. That is good to know. I think a lot of people are going to be glad that you have just cleared that up. What has the employers excited about this new tax bill?
Grace: when I answer this question, you are going to hear me use the term employees a lot. That is because employers and employees have a mutualistic relationship. Where one depends on the other for their success. When employees are happy the business thrives. So, I believe that what has some employers happy, it automatically affects employees as well. Now, some corporate employers are happy because they are getting that reduction from the 35% to 21%. It will allow them to provide higher wages, better bonuses for their employees. Now, not all employers are thinking like that. But there are some employers who understand that this is a mutualistic relationship here. So, our company will thrive if our employees are happy. So, they are glad that they are getting this reduction so that they can compensate their employees accordingly. Other companies and passed through entities, they can do the same thing with that 21% deduction that they are able to take. They can offer better reward programs to make their employees more productive. And the final thing that I think some employers are happy about is that they are now allowed to take a minimum credit of 12.5% if they offer paid FMLA leave to their full-time workers, or a proportionate amount if they are offering that paid leave to part time workers. Now, this is big, because, as we know the family medical leave act offers unpaid job protective leave. So if an employer wants their employees to stick around after going on leave and they have to come out of pocket to pay them paid leave. If they feel that this is important to employees. Now the fact that this is allowing employers to take a credit, a minimum of 12.5% and that percentage goes up based on the amount that is being paid to the employees. So, it is a win win! Employers have an incentive to provide paid leave to FMLA. But not just that, employees who are seeking great benefits would be very happy about that.
CJ: yeah. That would be interesting to see how that plays out, especially in a state like New York with, as you know, just effective January 1st of this year, its new paid family leave act just became effective. That was passed back in 2016 along with a new wave of minimum wage increases. So, that started officially January 1. So, New York joined, New jersey and California and a couple of other states that have mandated paid family leave. So, that would be interesting to see how that plays out. So, when you were back in payroll and HR administration, how would you be thinking about this? I guess another way to rephrase the question is what is the impact of this tax bill on payroll and HR administrator? How might that change their day to day jobs?
Grace: the impact is that it is the timing. I think that is more than anything. The timing of this new tax bill is the biggest thing for HR and payroll administrators. It is coming at a time when it is smacked out in the middle of W2 processing, year hear processing. And that is the most hectic time for a payroll and HR, for those two functions. It is overwhelming because of that. They already have to make sure that W2’s are going out on time, that they are accurate. And not only that, that their 941 or their filled-out forms, all of these different tax forms are being reported on time, accurately to the federal government, states and depending on where their located local government. So, the timing, I think is the biggest issue here for those professionals.
CJ: yeah. For sure. We have a lot of people in our organization that would definitely relate to that and that would be very happy that you brought that up, same thing with our client too. You mentioned some stuff about employees and the impact that it has on them, and specifically the impact that it has on employers as a result that it has on employees, and the rest of proximities that really exist. But, before we wrap up? What about employees? Is there anything else that you think is especially relevant to them about this thing or so?
Grace: yes. What I found is that employees are mainly concerned with 2 things with this new tax bill. How is this going to affect my paycheck? And how is this going to affect my taxes when it is time for me to file? What is my tax liability going to be like? Those are the main things that employees are concerned about. And I think what they have to realize is that they need to be proactive, and not simply rely on their employers to give them all the information they need. Now I want to circle back just a little bit on the prior question that you had about how this would impact in HR and payroll administrators. I wanted to say that one of the thing that HR and payroll administrators want to do to make sure that they are managing the employee’s expectations. Because our treasury secretary told us that 90% of employees or individuals will see an increase on their take home pay. That may very well be true. However, it is very important for HR and payroll specialists to explain to employees that that increase is not automatic. It is dependent on how you fill out your W4 form, it is also dependent on your taxable wages, your filling status, and IRS withholding capital letter. They have get to manage employee’s expectations. Because they are coming in thinking: I am going in that bunch getting an increase. It is not automatic. So, I am going to go back to your last question. Employees have to be proactive in making sure that their W4 forms are filled out the way it should be filled out. Now the 2018 form has not been released yet, but we know it is coming. So, it is up to employees to examine the first paycheck that they receive in February showing these changes, look at it and decide whether they need to adjust their 2017 form in the meantime. And if they need to adjust the 2018 form later on, if they may need to do that. They need to be proactive in also going on the IRSS website and using the calculator to help them figure out what their taxes should be, so they don’t overpay and underpay. They can expect their employers to tell them that there is changes here. They can expect their employers to tell them that you may need to fill out a new W4 form. But they can’t expect their employers to show them how to fill out the form so their taxes are accurate. And they can’t expect their employers to tell that they even need to fill out a new form. Because that is their job. So, I think it is very important that their expectations are managed and that they are proactive.
CJ: I think that is a phenomenal answer that resonates probably with a lot of people in our industry out there. Grace, I want to thank you so much for your time. Everybody, this is Grace Ferguson, she is a former payroll and HR administrator, and a current writer and content producer in the payroll and human capital management field out of Atlanta, Georgia. She has added a ton of value for me and us already, and I hope you all feel the same. So, Grace, thank you so much, and we look forward to catching up with you soon.
Grace: Thank You CJ.
CJ: take care.
Grace: Ok, you too.