By No Labels
Now that Congress passed a historic overhaul to the tax system and President Trump has signed it, the real work of implementing the law will begin — and there’s a massive amount to do.
The new law will take effect just days after it passed, meaning that the Internal Revenue Service will be processing hundreds of millions of returns for 2017 at the same time it is implementing the new tax system for 2018.
While advocates and critics will continue to spar over the bill, the reality is the same for both sides: A great deal will change in the tax system, and it will do so quickly.
Here’s what you need to know.
The IRS processed more than 244 million tax returns and supplemental documents in 2016, according to government data. The tax system is a massive operation that touches most Americans in some way. If you file a tax return, the new law will likely impact you.
The tax overhaul passed in about seven weeks, meaning there was scant time for the IRS to prepare new tax tables and rules. Moreover, the IRS has seen significant cutbacks since 2010, including a 17 percent reduction in its budget and a 23 percent decrease in staff. After the last major tax overhaul in 1986, Congress increased the agency’s budget to address the changes. So far, Congress has not done the same for this year’s overhaul, but that could change in coming weeks. Meanwhile, Trump has requested that the IRS create rules by February.
Accountants, tax lawyers and others who are responsible for preparing individual and corporate tax returns need guidance on how to interpret the new law. That guidance comes from the IRS and the Treasury Department, which will have their hands full trying to write regulations and explain them to an audience who needs the information right away. Questions have already surfaced about whether last-minute tax moves this year, such as paying property taxes early to maximize deductions, are advisable, or even legal.
Most people pay income taxes via withholding in their paycheck. How that withholding is calculated will change under the new tax law. The IRS is already working to prepare guidance for payroll managers, according to a statement, but the new withholding numbers likely will not be implemented until February. That means employees will have to make adjustments later in 2018 if the amount they withheld in January was inadequate.
The tax overhaul includes some initiatives that are brand new, such as taxing some university endowments. The rules and procedures that apply still need to be written, even as they will take effect in January. That means there will be a great deal of uncertainty in some quarters, at least for the time being.