The IRS released Notice 1036 on January 11th, updating the income tax withholding tables for 2018 to reflect changes made by the recent tax law passage.

In the recent news release, the IRS states:

Employers should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.

The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This will minimize burden on taxpayers and employers. Employees do not have to do anything at this time.

The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets.

To help people determine their withholding, the IRS is revising the withholding tax calculator on IRS.gov. The IRS anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once it is released.

The IRS is also working on revising the Form W-4. The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job. Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4.

For the full news release: Updated 2018 Withholding Tables Now Available; Taxpayers Could See Paycheck Changes by February | Internal Revenue Service

Yet again, the IRS has extended the deadline for “insurers, self-insuring employers, other coverage providers, and applicable large employers to send out 1095 forms to individuals.”

They now have until March 2, 2018, to provide Forms 1095-B or 1095-C to individuals, which is a 30-day extension from the original due date of Jan. 31… This 30-day extension is automatic. Employers and providers don’t have to request it.

For individual taxpayers and the accountants that prepare their returns, this is pretty frustrating news. Those responsible for providing health insurance (insurance companies, self-insuring employers, and applicable large employers, etc.) are required by the ACA to furnish statements to employees and other covered individuals regarding the health care coverage offered to them. Individuals use this information to determine whether, for each month of the calendar year, they may claim the premium tax credit on their individual income tax returns.

Because accountants are required by law to confirm with their clients that they had insurance that meets the requirements of the mandate, not having Form 1095 in-time to prepare 2017 tax returns is a challenge. Therefore, the IRS has provided guidance indicating that other sources can be used to confirm coverage — such as insurance cards or bills — but obviously those documents don’t provide information on which months the taxpayer may not have had coverage, so relying on them or on a taxpayer’s memory of which months they are covered can be a costly mistake.

Source: IRS Extends Due Date for Employers and Providers to Issue Health Coverage Forms to Individuals in 2018 | Internal Revenue Service

NOTE: UPDATED JAN 2, 2018

Clients and long-lost friends have been calling incessantly and I’ve been overwhelmed by emails and facebook posts since the new tax legislation was passed. Most of the questions I’m getting are on the topic of an attempt at ‘parity’ between the new, permanently lower C-corp tax rates, and the tax rates paid by sole proprietors and flow-through entities.

So thank goodness that my favorite tax writer, Tony Nitti, has done it again. He’s managed to make the most asinine, overly-complex piece of tax law comprehensible. Well, mostly. Given that the congressmen that passed the law have clearly never read any of it, there’s only so far you can go.

Tony’s recent article in Forbes, Tax Geek Tuesday: Making Sense Of The New ‘20% Qualified Business Income Deduction’, does its best to interpret, analyze, and instruct on the topic of the new mysterious 20% income deduction for flow-through entities. Tony states:

On its surface, Section 199A will allow owners of sole proprietorships, S corporations and partnerships — and yes, even stand-alone rental properties reported on Schedule E —  to take a deduction of 20% against their income from the business. The result of such a provision is to reduce the effective top rate on these types of business income from 40.8% under current law to 29.6% under the new law (a new 37% top rate * a 20% deduction= 29.6%).

Courtesy of this new deduction, sole proprietors and owners of flow-through businesses retain their competitive rate advantage over C corporations: it is 10% under current law, and will be 10% under the new law (39.8% versus 29.6%).

He reviews the following areas, being careful to note what we don’t know (given the rushed passing of this law and the lack of precedent or regulations, there’s a lot of that):

• Overview of the QBI Deduction
• Qualified Business Income
• W-2 Limitations
• Exception to W-2 Wage Limitations
• Phase-In of W-2 Limitations
• Treatment of “Specified Service Trades or Businesses”
• Phase-Out of Deduction for Specified Service Businesses
• Ancillary Issues

He somehow manages to do this all with illustrations using various scenarios and examples, and above all — humor. Again, he stresses that “Section 199A, however, is in its infancy. We don’t have regulations.” There are “definitional debates” all over the internet already… and without any precedent from court cases on some of the related topics, we’re likely to see a lot of loopholes until this section makes its way through the justice system.

At 10,000 words, it’s a long one, but it’s worth the read. This is the shortest, clearest, and most entertaining description I’ve seen so far of this particularly messy section of the new tax code. As Tony says, “with no regulations, no form instructions, and most unfortunate of all, no one who helped craft the bill or vote on the thing who actually understands what it says, it may be a while before clarity is forthcoming.”

UPDATE: January 2, 2018 — some clarity and additional explanation of complex areas came out in another Nitti article, a follow-up to the one noted above, in which he interviews a former IRS attorney about this new section of the law. It fills in some gaps in the last article, and the two of them discuss additional potential issues, as well as a timeline for technical corrections. My biggest take-away is that this thorny section of the code will be causing us all massive headaches well into 2019.