On 22nd December 2017, the Tax Cuts and Jobs Act, which brings significant changes to the US tax system, was signed by President Trump and has now become law. The legislation impacts the taxation of some executive compensation and a number of employee benefits.
Although the proposals for significant changes to the taxation of deferred compensation, which were included in early drafts, were removed during the legislative process, the legislation still contains important changes for employers, such as limiting the corporate tax deduction for compensation to named executives and for a number of employee benefits.
A key operational change that will affect most organisations is the change to individual tax brackets, which in turn will impact the applicable withholding rates. The US tax authorities (the IRS) has issued a statement to confirm that it is working on the initial withholding guidance under the new rules and expects to issue the guidance in January, with a view to encourage employers to apply it from February onwards. This should be specifically monitored in relation to, for example, any vestings of cash and equity awards that take place in February and March, as the window of opportunity to amend the rates will likely be short, and organisations will need to act quickly to ensure compliance.
Attached in an Insight which includes details on the key changes that affect employers.
For further details please contact Kate Harris.