Payroll by the Numbers: Major Changes for 2018

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By Keith Hill

The tax overhaul bill (H.R. 1) that was signed into law Dec. 22 means that major changes in the federal tax code are ahead for employers and employees. For example, personal exemptions and some employer-related deductions, such as for moving expenses and entertainment, were suspended or eliminated starting in 2018.

However, the Internal Revenue Service and other federal agencies have released some tax-related amounts that payroll professionals may use in 2018.

Although some amounts did not change from 2017, the most interesting adjustment occurred with the Social Security wage base, which was lowered to $128,400 from $128,700 after corrected Forms W-2, Wage and Tax Statement, were provided in late October by a large payroll-service provider.

This guide serves as a reminder for payroll departments of some of the required amounts for 2018.

Threshold Amounts

These figures represent amounts that are to be used in the new year.

•$128,400—the 2018 wage base for the Social Security program, also known as the Old-Age, Survivors and Disability Insurance program.

•$18,500—the limit for tax-deferred employee contributions to a Section 401(k) plan, Section 403(b) plan or Section 457 plan for 2018.

•$6,000—the catch-up contribution limit to a Section 401(k) plan for individuals 50 and older for 2018.

•$55,000—the annual contribution limit for defined-contribution plans in 2018, provided the annual compensation taken into consideration is no more than $275,000.

•$12,500—the maximum elective deferral an employee may contribute in 2018 to a savings incentive match plan for employees ( SIMPLE plan). Employees 50 and older may contribute up to $15,500.

•$600—the participation threshold for a simplified employee pension under Internal Revenue Code Section 408(k)(2)(C) in 2018.

•$220,000—the annual benefit limit for defined-benefit plans for 2018.

•$405,000—the Section 401(a)(17) cost-of-living adjustment to the compensation limit for 2018.

•$120,000—the limitation used in the definition of a highly compensated employee under Section 414(q)(1)(B) for 2018.

•$175,000— the dollar limit for a key employee in a top-heavy plan in 2018.

•$110,000—the amount of compensation used to identify a control employee for use in valuing fringe benefits in 2018.

•54.5 cents—the standard mileage rate for transportation or travel expenses involving the business use of an automobile.

Other Amounts

•$12,000—the standard deduction amount for single filers under the new tax bill, up from $6,350 in 2017. For married persons filing a joint return, the amount increases to $24,000, up from $12,700.

•2018 per diem rates: The standard per diem rate is $144 ($93 lodging, $51 meals and incidental expenses) to reflect the average daily rate for lodging and meals and incidentals. High-low per diem rates for 2018 also have been released.

•$260—the maximum monthly amount that an employer may provide on a tax-free basis for transit passes and qualified van pools, up from $255 in 2017. The employer-provided parking exclusion also increases to $260 a month. The tax-free reimbursement of up to $20 a month for employees commuting to work by bicycle is to be eliminated from 2018 to 2025.

•$104,100—the maximum amount of foreign-earned income that a U.S. citizen or resident living and working abroad may exclude for tax purposes in 2018, provided the individual qualifies under Internal Revenue Code Section 911 requirements.

•$2,650—the tax-free amount for qualified health flexible spending arrangements in 2018, up from $2,600 in 2017.

•$3,450—the maximum amount of tax-free contributions for covered benefits allowed for individual health savings accounts, up from $3,400 in 2017. For family HSAs, the amount increases to $6,900, up from $6,750.

•$2,100—the maximum amount a domestic employee in a private home may be paid in a year that is exempt from taxes under the Federal Insurance Contributions Act in 2018.

• $547,000—the maximum penalty in 2018 for filing incorrect information returns with the IRS and correcting them within 30 days.

•$1,925—the maximum amount per employee that an employer may be charged for repeated or willful violations of the minimum wage and overtime requirements of the Fair Labor Standards Act. The penalty for violations of the child labor provisions of the law is a maximum of $12,278 per employee.

•$13,840—the credit allowed for expenses related to adoption assistance.

•37 percent—the highest marginal tax rate will affect singles whose income exceeds $500,000 in 2018, up from $418,400 in 2017. For married taxpayers filing a joint return, the threshold is $600,000, up from $470,700.

Phone Numbers

•800-829-4933—the toll-free number established by the IRS to help businesses with questions on employment taxes.

•866-455-7438—the toll-free number for the IRS Information Reporting Program.

•800-772-6270—the toll-free number for the Social Security Administration for wage reporting.

•866-487-9243—the number for the Labor Department’s Fair Labor Standards Act team on wage and hour issues.

•800-372-1033—the toll-free Bloomberg Tax customer service number.

Toward 2018: The Year-End Clearinghouse by Bloomberg Tax is available on the Payroll Library website, which offers additional information for payroll professionals.

To contact the reporter on this story: Keith Hill in Washington at khill@bloombergtax.com. To contact the editor on this story: Michael Baer at mbaer@bloombergtax.com.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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