Even with a significant development in the form of federal tax reform at the end of 2017, many legislative conversations seemed to go around in circles over the past year.
As a result, it’s difficult to know where regulations stand now and how they may change moving forward. This is particularly true for small business clients. They’re focused on running a profitable business and staying ahead of the competition. Small business owners don’t have the time or resources to make sense of the ever-changing regulatory landscape, making it even more important for you to help them understand current laws.
One of the top regulatory issues this year is tax reform (see the list The top 10 small-biz regulatory issues for 2018). The speed with which the GOP passed the first major tax overhaul in decades left businesses with little time to assess what the legislation means for them in 2018. In January, the IRS released Notice 1036, instructing employers how to appropriately withhold wages from their employees’ paychecks. The new tables reflect the increase in the standard deduction, repeal of personal exemptions, and changes in tax rates and brackets. Employers had until Feb. 15, 2018 to implement the new withholding guidance.
From a business perspective, small business owners can also begin 2018 tax planning, knowing the corporate tax rate will be streamlined to a flat 21 percent. Some small businesses will likely be interested in changing how they are structured to take advantage of tax reform’s measures to further reduce the tax burden for pass-through entities. However, pass-through entities utilizing the individual tax code will need to pay close attention to associated personal tax changes, including rate cuts, some removed deductions (including personal exemptions and the deduction for state and local income tax), and the increased standard deduction. Congress added a deduction of business income for pass-through companies of up to 20 percent, but there are complex requirements and guardrails for the application of this deduction.
In addition to federal tax reform, businesses will also likely face tax changes on a state level. Those states that conform to federal standards will need to assess and react to any changes caused by the federal overhaul. Many states, especially those with higher taxes, are also scrambling to come up with laws to lessen the impact of federal changes on state taxpayers, particularly as they relate to tax and revenue impacts. Along the same lines, each jurisdiction will need to assess the impact of decoupling or following the Internal Revenue Code on their budgets and their constituents, which may lead to withholding changes. The full impact of tax reform is still evolving, and your small business clients will rely on you to help them comply with new federal, state and local tax codes.
As it has for the past several years, health care remains a complex, but important, aspect of any business’s regulatory compliance. For tax year 2017, businesses that are defined as an “applicable large employer” under the Employer Shared Responsibility provision of the Affordable Care Act must provide a detailed reporting of health care coverage. Unlike the previous two years, there is no transition relief in 2017 for how employers offer coverage. However, the IRS extended good faith effort relief for reporting incomplete or inaccurate returns for 2017 tax year. Good-faith transition relief does not apply to entities that don’t file their returns on time.
The IRS also extend the furnishing deadline for the Form 1095-C to March 2, 2018, but it did not extend filing deadlines with the IRS. Additionally, in late 2017, the IRS began sending out the first notices of proposed Employer Shared Responsibility payments for 2015 filing, Letter 226-J. Employers have an opportunity to respond to this notice correcting any incorrect information, but these responses can be lengthy and complex. Some employers will need to research these notices, correct any errors in their previous filings, and communicate with the IRS while also preparing for current year obligations—a huge undertaking that will undoubtedly require your help and guidance. Further, with the long-term future of the ACA unclear, some states are expected to begin proposing their own changes to health care policy, a development that could be impactful to employers in those states.
Another key area of regulatory change in 2018 is employment law. There are currently more than 40 different states and local jurisdictions with paid sick leave laws applicable to private employers. While there are fewer paid family leaves currently on the books, 2018 brought the nation’s most comprehensive paid family leave law to New York State. However, a recent proposal in Congress, the Workflex in the 21st Century Act, would pre-empt the many paid leave laws at the state and local level, as well as any others expected to be introduced.
Overtime regulations also remain in flux, and a proposal for a long-awaited revision could come by the end of 2018, but, until then, employers are reminded to continue compliance with the existing federal overtime regulations, as well as applicable state requirements that may incorporate salary levels that exceed the federal level.
Immigration is one of the few areas where the Trump administration intends to ramp up regulatory oversight, particularly via a significant increase in worksite reviews. To avoid penalties, employers should ensure they’re using the correct, recently updated version of the Form 1-9 and deliver the separate instruction pages to all new employees on their first day of employment.
It can be overwhelming for anyone to keep track of (let alone implement) the never-ending list of regulatory requirements to which businesses must adhere, but this is especially true in a year when so much has or will change with regard to regulations. Armed with knowledge of business regulation, you can help your small business clients understand their role in remaining compliant and avoiding costly penalties, which in turn will help their businesses grow.