Important State and Federal Tax Changes in 2019
Changes in tax law and pending legislation don’t always make the headlines. Businesses must stay informed to avoid the price of being caught unawares.
Tax laws are ultimately no different from any other in that they’re subject to legislative change. These changes may be sweeping and significant but are most often incremental shifts as policy evolves and adapts to a changing world.
Unlike other laws, alterations to tax rules only catch the public attention if they’re sufficiently impactful such as the Tax Cuts and Jobs Act, which initiated more than 600 rule changes. This makes it vital for individuals and especially businesses to watch for less-publicized shifts which could make a big difference to their tax return. Here are some of 2019’s most notable tax developments.
What happened in July
Many states saw tax changes come into force on July 1st, the opening of the fiscal year for 2020. These changes covered multiple areas from income and sales tax to fuel and capital gains. Some examples indicative of the wider changes:
- New York and Vermont amended property tax codes to net more revenue from property transfers. The “Mansion Tax” was one of several things impacted by Senate Bill 1509, which added a surcharge to real estate transfer taxes on high-value properties. This is a significant change as it helps address the controversial issue of wealth imbalance.
- New sales tax collection requirements were imposed or expanded on remote sellers (e-commerce retailers) in 13 states, expanding the remote sales tax collection laws to include marketplace facilitators. Generally, these changes apply to sellers with sales of over $100,000 or a transaction count of 200 within their state. Sellers wondering if they’ve been impacted by the Streamlined Sales and Use Tax Agreement should check the status of their home state.
- California, Illinois, Montana, Nevada, Ohio, South Carolina, and Tennessee saw gas tax increases.
- Gross income is now affected for businesses in Washington. This Business and Occupation tax is relatively low but is set to increase again in January 2020.
- Private-sector employers in Massachusetts and the District of Columbia will be taxed to fund a new paid medical and family leave. An initiative is set to begin paying benefits in Massachusetts starting in January 2021. This payroll tax is shared between employers and employees in Massachusetts totaling 0.63 percent of wages up to $132,900 (the Social Security wage base for 2019). For D.C. private sector employers, this tax change is set at 0.62 of the employer’s gross wages paid and is set to payout starting in July 2020.
The full extent of July’s changes can be read via the Tax Foundation’s free report.
Pending Senate treaties could foreshadow significant change
Tax treaties at the national level saw four bills passed by the Senate Foreign Relations Committee. These treaties impact agreements with Japan, Switzerland, Spain, and Luxembourg. Other treaties are pending which would affect America’s tax relations with additional nations.
U.S. businesses with operations overseas share a symbiotic relationship with those countries. Of the 58 income tax treaties America currently has in place, seven of those countries have injected over $1.2 trillion into the U.S. generating a great many jobs. These bilateral treaties help to smooth out the often- rocky differences in tax issues between different nations facilitating trade and investment.
The recent passage of these four treaties is significant, as such shifts are usually glacial. Now finally in place, the tax benefits are available to be felt by all involved. The tax changes implemented by these treaties help to sidestep double taxation and align tax withholding, as well as provide some measure of prevention against tax evasion.
These changes make the U.S. a more attractive trade prospect; good news for American businesses, many of which can realistically look forward to new opportunities and growth.
A new W-4 design for 2020
The IRS released a working draft of a new W-4 framework designed to simplify accurate withholding for employees starting next year. This is a direct result of the changes made by the Tax Cuts and Jobs Act and will see the new W-4 do away with the concept of withholding allowances which was previously linked to the amount of personal exemption.
The IRS plans to release the final version of the new W-4 form in November for use in 2020, maintaining that it will bring greater accuracy, privacy, and simplicity to the payroll process for employees and employers alike. Employers who submitted a W-4 prior to 2020 won’t be expected to submit a second one but can instead use the employee’s most recent form.
The IRS has also created a Paycheck Checkup tool available which they encourage taxpayers to use, especially if they’ve recently undergone any significant life changes or adjustments of status. The tool is also useful for any taxpayers who work freelance or form part of the gig economy.
2019 credits and reductions for small businesses
Many types of businesses and self-employed individuals became eligible for the Section 199A deduction in 2019. The new rule allows for up to a 20 percent deduction in qualified business income as well as a further 20 percent in qualified publicly traded partnership income and qualified real estate investment trust income. The deduction will be available again in 2020.
2019 changes to things like business use of a home and other business-related expenses look set to stand. The General Business Credit contains further tax credits for businesses with one other important benefit: if a taxpayer is eligible for credits but is unable to use them in 2019, they’ll be able to retroactively apply them or carry them on to a future year.
Today’s blog was just a snapshot of the always-shifting world of tax law. Get in touch with us at the details below for more insight and advice on making the most informed decisions.
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