Payroll services providers make changes to their software every year, small tweaks to keep up with minor modifications in policies and procedures.
This year, however, was different.
Payroll services firms had to scramble to adjust to the unexpected federal tax overhaul signed into law in December by President Donald Trump. The expansive tax reform legislation led to a number of changes that payroll providers had to deal with immediately.
Jim Bolek, a certified payroll professional at the Grand Rapids office of BASIC, said the timing of the law at the end of the year created the biggest hurdle. The firm’s software provider needed to make code changes in a very short period over the holiday season to comply with the new law.
“The timing was the hardest part, as the short window that (we) had to put it in prior to the first payroll of the year made it impossible to program, test and implement,” Bolek said. “That is why the (Internal Revenue Service) gave companies a time period that it had to be completed by, so it could go retroactive.”
Annual changes, such as the federal, state and local governments’ updated tax tables, deduction amounts and unemployment wage bases, usually are reflected in paychecks as soon as the new year begins. Changes based on new legislation, however, can be made to the software through the year, Bolek said.
BASIC and its software provider, Evolution by Asure, had to wait until the IRS made the necessary changes reflected in the December law.
“All of the federal tax tables changed, as far as standard deductions, wages and tax brackets,” he said. “There were also some changes that were made to the taxability of certain types of incomes and payments, which needed to be updated in the system.”
According to the IRS, the standard deduction has almost doubled compared to previous years. The standard deduction is now $12,000 for single taxpayers and $24,000 for married taxpayers. Before the new law, the standard deduction for single taxpayers was $6,350 and married taxpayers were $12,700.
The tax rates for the various wage and tax brackets also have changed. The tax rate for single taxpayers earning up to $9,525 per year is now 10 percent. Before the federal tax overhaul, 10 percent was withdrawn from single taxpayers earning up to $9,325. The tax rate for single taxpayers earning between $9,525 and $38,700 is now 12 percent. Under the previous law, single taxpayers who earned between $9,325 and $37,950 were taxed at a 15 percent rate.
The tax rate for married taxpayers earning up to $19,050 is now 10 percent, compared to earning up to $18,650 before the law was changed. The tax rate is currently 12 percent for married couples who earn $19,050 to $77,400. The tax rate was 15 percent for married taxpayers who were earning $18,650 to $75,900.
The shift in tax brackets and tax rates applied to every company, which resulted in a mad scramble of software code changes and testing throughout the country.
“The software company (Asure) wrote the code for the changes and went through their own series of tests for accuracy,” Bolek said. “Then they released it to the users and we implemented it and then did our own testing, running sample payrolls and spot testing for reasonableness.”