Bracket Changes and More From the IRS

You haven’t even filed your 2017 taxes yet, but the IRS has already announced changes that will affect your 2018 taxes, which you’ll be filing in 2019. The changes were announced in Revenue Procedure 2017-58, which runs 28 pages, but below are some key points. How do these changes impact you? Give us a call, and we’ll explain how they change your tax situation.

Of course, if any meaningful tax reform is passed, anything can be changed. We’ll keep you posted on any developments that affect you.

  • The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017, and for heads of households, the standard deduction will be $9,550 for tax year 2018, up from $9,350 for tax year 2017.
  • The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly).
  • The bracket changes have not gone up significantly from the previous year. For example, the floor for the 28 percent “married — filing jointly” category is up from $153,101 to $156,151. The details of each bracket are described in the revenue procedure.
  • The Alternative Minimum Tax exemption amount for tax year 2018 is $55,400, and begins to phase out at $123,100 ($86,200 for married couples filing jointly, for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).
  • The tax year 2018 maximum Earned Income Credit amount is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2018, the monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking.
  • For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains as it was for 2017: $695.
  • For tax year 2018, for participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,300, an increase of $50 from tax year 2017, but not more than $3,450, an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. For tax year 2018, for participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017; however, the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.
  • For tax year 2018, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.
  • For tax year 2018, the foreign earned income exclusion is $104,100, up from $102,100 for tax year 2017.
  • Estates of decedents who die during 2018 have a basic exclusion amount of $5.6 million, up from a total of $5.49 million for estates of decedents who died in 2017.
  • The annual exclusion for gifts increased to $15,000, an increase of $1,000 from the exclusion for tax year 2017.

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Managing a Unionized Workforce

You may have both union and nonunion employees. If a union is voted in by some of your employees, they are union members, not union employees — they are your employees. How to deal with them? Apply the same good management techniques you’ve always used in the past.

Approach managing all employees the same way, whether they’re represented by a union or not. Effective management applies to both — be honest, communicate well and often, listen to and resolve issues as they arise, recognize and reward good performance, and create an environment of trust and respect.

Discipline yourself to treat all employees the same — once you start to treat them differently, they will begin to look at and react to you differently.

Learn how to work with shop stewards — the first level of representation for your workers represented by a union. Work with them as though they are an extra set of eyes and ears for you: a partner helping manage your employees. A steward can be a helpful ally for the wise manager.

Resolve disputes quickly and fairly. Formal grievance procedures are standard in most union contracts, but they’re only there if you and your employee can’t resolve a disagreement first. Talk to the people in your organization who can help you — your supervisor or HR — and then work openly with your shop stewards and employees.

This can be a positive — you negotiate with a set group of people who are elected representatives of the workforce so that you can come to an agreement on changes to terms of employment relatively easily. These reps can help you pinpoint and deal with issues upsetting people and reducing performance.

Know the Rules and Contracts

The laws and rules governing unionized work are complex and vary depending on the union. The union will refer to the contract in negotiations and even during day-to-day work. So the more familiar you are with contract terms, the more effectively you’ll be able to respond to questions or challenges.

Approach the union as a business partner, not an adversary. Tell the union representative if you are having problems with a unionized employee. He or she may be able to provide assistance. Put time into establishing trust with everyone on your team, including union representatives.

Spend time with the team outside of work — consider, for example, volunteer days when everyone volunteers for a social project in the community. Share important information as soon as you reasonably can. Tell union reps about upcoming changes or breaking news early to give them a chance to brush up on the issues. That way, they’ll be prepared to answer questions from members. When you give them a heads up, it builds trust and establishes a practice of open communication.

When you have a good partnership with union representatives, you can ask for their help in solving disciplinary issues. By treating your employees with respect and creating an environment of trust, you’ll have a workforce willing to give you the benefit of the doubt, confident enough to be understanding when your business needs to be flexible, and comfortable talking with you — rather than their union representatives — about their concerns. There may be times when the truth is complicated or difficult to explain, but your employees will understand and respect you for being straight with them.

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Big Changes in Social Security and Retirement Plans for 2018

From 401(k) plans to individual retirement accounts to Social Security, the federal government has been busy in recent weeks adjusting numbers for 2018. Whether you’re an employee or business owner, senior management or nonexempt staff, these changes may affect how you approach retirement in the coming months and years.

Social Security: New ceilings

First, let’s start with what is not changing. The 7.65 percent Social Security deduction remains the same. And as before, it’s doubled to 15.30 percent for the self-employed.

However, the maximum earnings subject to Social Security rises from $127,200 to $128,700, a $1,500 increase. The Society for Human Resource Management estimates that this change means 12 million more workers will be paying more Social Security tax than before. The 1.45 percent Medicare portion, which has no ceiling, remains unchanged.

Those who are working while collecting Social Security catch a small break: The SSA is raising slightly the amount people can earn before losing a portion of Social Security benefits. The new amounts are $10 or $40 a month, depending on the recipient’s status.

Another significant change is to the maximum Social Security benefit for those retiring at full retirement age, which changes from $2,687/month to $2,788/month, a $101 increase. More details are available on the Social Security site.

Retirement plan limits rise

Workers who can afford to do so can put away a little more for retirement: The limit for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

It’s a little more complicated for those contributing to IRAs:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Roth IRA contributors also get a bump up: The income phase-out range is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Some IRA numbers are not changing, however:

  • The limit on annual contributions to an IRA remains $5,500. The additional catch-up contribution limit for individuals age 50 and over remains $1,000.
  • The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

These are just summaries of complex rules. Be sure to give us a call so we can explain how these changes may affect your situation.

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A How-To Guide on Managing the Ubiquitous Form 1099

One of the most important tax and payroll issues a company has to address is who is an actual employee and who is an independent contractor. Once you have that worked out, your next step is making sure each category of workers gets the right forms. True employees get a Form W-2 each year, and freelancers — independent contractors — get a Form 1099-MISC. This form can be used for a variety of payments, and one of the most common and significant uses is for independent contractors.

You must issue a Form 1099-MISC to each nonemployee you pay $600 or more during the year, and this is a requirement for all trades or businesses. For the purpose of this form, even a nonprofit is considered a trade or business. Federal, state and local governments also have to issue these forms.

Corporate payments

The adaptable Form 1099-MISC is also required in a variety of payments to corporations:

  • Medical and health care payments.
  • Attorneys’ fees.
  • Substitute payments in lieu of dividends or tax-exempt interest.
  • Payments by a federal executive agency to vendors for services.

However, except for the specified situations, Form 1099-MISC is not typically used for corporate payments. Indeed, there are many payments for which Form 1099-MISC is not appropriate:

  • Payments for merchandise, telegrams, telephone, freight, storage and similar expenses.
  • Payments of rent to real estate agents.
  • Military differential wage payments made to employees while they are on active duty in the armed forces or other uniformed services (report on Form W-2).
  • Business travel allowances paid to employees (may be reportable on Form W-2).

If you’re not sure which form to use and when, give us a call. We’ll be happy to help you sort out the details.

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How to Communicate With Your Staff

Don’t let poor communication among your workers and managers get worse. It can lead to a serious decline in your firm’s health. But there are ways to perk up communication. Here are some smart tips for improvement:

Check in with employees on a regular basis. Meet with them either in person or online every few weeks or months, inviting discussions about their projects, tasks and the organization as a whole.

  • Employees want to be heard, want to share thoughts and opinions.
  • This will improve internal communication throughout your entire organization, empowering your employees to feel comfortable in their positions.

Make internal knowledge and documents easily available. Especially for new employees, it can be difficult to learn the ropes and understand how the company actually operates.

  • Make internal knowledge easily available via documentation on your intranet.
  • Keep communication flowing.

Assess your communication methods. There’s email, telephone, messaging and in-person communication — some of these modes may be more useful than others.

  • Email is probably not the best way to have a conversation with someone.
  • Consider collaboration tools.
  • By assessing how your organization communicates, you can decide whether you’re missing a particular method, relying too heavily on one form or it’s time to make some changes.

Implement social intranet software, for instance. Comprising a variety of tools that can help improve daily business processes, an intranet features a platform that allows easy retrieval of old conversations.

  • It empowers employees to bounce ideas off each other in a judgment-free environment.

Have an open-door policy. Employees wonder how to communicate with managers and CEOs. They may not feel comfortable approaching the boss, and this apprehension blocks communication.

  • Allow communication flows so all employees feel comfortable bringing up important points — anything they want to bring to your attention at any time.
  • This is immensely beneficial to your business’s internal communication.
  • It makes you more approachable.
  • It motivates employees.

Take advantage of social media. It’s a powerful aid for business.

  • Employees can comment and share interesting posts that may relate to your organization.
  • It creates interesting and meaningful work-related conversations.
  • It combines relationship-building with business goals and philosophies.

Create an internal language to improve your employee engagement strategy.

  • Perhaps use a set of acronyms throughout the day to describe certain aspects of business. Consider made-up slang based on inside jokes or company principles.
  • See this as a fun way to keep things interesting throughout the week.

Strengthen connections between managers and employees. If managers and employees don’t work hand in hand with each other, encourage stronger, more collaborative relationships.

  • Go beyond employees simply reporting to managerial staff with status updates.

Don’t chastise mingling. Watercooler chat may seem like wasted time and, therefore, wasted money, but it’s an essential aspect of relationship-building.

  • Employees need to get to know one another.
  • They can’t always be discussing work — off-topic conversations and debates during the workday help meld employee relationships.

And here are some short ways to get with it:

  1. Let communication be a two-way street. One-way control, top-down communication has gone the way of the dodo.
  2. Hold teamwork in high regard. Ask employees to take a team-based approach — it helps them feel comfortable collaborating with co-workers.
  3. Take inventory of your own communication skills. You want to serve as a model leader? Look within and work on improving your own skills.

Improving workplace communication can be time-consuming, but it is best approached by trying to implement a number of tips at the same time. You’re bound to see positive results. For more on how you can improve internal communication, give us a call.

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How to Recruit the Best Staff

Recruiting and retaining talent — ah! There’s the rub. Let’s start with a few nuggets of advice:

  • Companies that select new employees from the candidates who walk in the door or answer an ad are often missing out on the best candidates.
  • Some candidates are already working and may not be looking for a new position — they are just testing the waters while finding out how much more they’d be worth in the open market.

Here are specific actions to help you improve the candidate pool:

  • Invest time to develop relationships with university placement offices, recruiters and executive search firms.
  • Encourage your staff to participate in industry associations and conferences where they’ll meet candidates for you to successfully woo.
  • Regularly check online job boards for potential candidates and their resumes.
  • Use professional association websites and magazines to advertise any openings.
  • Look for potential employees on LinkedIn and in other social media outlets.
  • Bring in your best prospects for a meeting before you actually need them.

Here are some more provocative thoughts:

  • Hire a person who has done this exact job in this exact industry in this particular business climate for a company with a very similar culture. The idea behind this tip is that past behavior is the best predictor of future behavior. This strategy is supposed to enable you to hire winners. But, ask yourself: Why then is this person leaving their current company to join yours? Make sure your salary and benefits are competitive!
  • Hire candidates who will hit the ground running in your company. The thinking here is that you can’t afford the time to train a possibly successful candidate. Here again, know that there is the other side: When you hire and then train someone in your way of doing things, they’re bound to see it your way.
  • Always post positions internally first. This boosts morale and makes your current staff members feel that their talents, capabilities and accomplishments are appreciated.
  • Give internal potential candidates an interview. It’s an opportunity to better know your own staffers. In turn, they’ll learn about your goals and needs. In the end, you may find that there is a good fit between your needs and theirs.

Let the world in on your secret: You’re a great employer. How? Build your reputation and your company brand so that the best prospects seek you out. Candidates will want to work for you because they respect your brand.

  • Take a step back and consider: What are your employee practices for retention? Motivation? Accountability? Reward? Recognition? Flexibility in work-life balance? Promotion? Involvement?
  • Get your own employees bragging that your company is a great place to work. Candidates will believe employees more than they will believe your literature.

Should you involve your employees in the hiring process? There are three reasons to do this:

  • Your employees can recommend excellent candidates to your firm.
  • They can assist you in reviewing the resumes and qualifications of potential candidates.
  • They can help you interview people to assess their potential fit with your company.

If you don’t do this, you may be sabotaging yourself: people who participate in the selection process are committed to helping the new employee succeed.

Pay better than your competition. This is the last piece of the recruitment puzzle. You get what you pay for in the job market:

  • Survey your local job market and take a hard look at the compensation offered by others in your industry.
  • You want to pay better than average to attract and keep the best candidates.
  • If you try to lowball it, employees will resent their pay scale, feel underappreciated and leave you for the first good job offer they snag.
  • Employee replacement costs range from two to three times the person’s annual salary.

So remember: You get what you are willing to pay for in the job market. Keep that in mind and then add in the value of the benefits package.

  • Keep them above industry standard.
  • Add new benefits as you can afford them.
  • Educate employees about the cost and value of benefits.
  • Employees will appreciate how well you are looking out for their needs.

These ideas can help your organization succeed and grow as you create a workplace that meets your needs and those of your potential and current superior employees. Give us a call and we can help you with your recruitment efforts.

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Take a Look at the New HSA Plan Limits

For 2018, individuals can contribute up to $3,450, up from $3,400 in 2017, while family contributions are up to $6,900, up from $6,750 in 2017.

The maximum out-of-pocket figures are up too: $6,650 for single coverage, up from $6,550 in 2017, and $13,300 for family coverage, up from $13,100 in 2017.

A U.S. House of Representatives’ bill includes enhancements to HSAs, essentially doubling contribution limits, pegging them to out-of-pocket maximums. Nothing is certain, but it’s instructive to see what the future of HSAs could look like. Of course, the volatile situation regarding the Affordable Care Act could change everything.

Employees can open an HSA only if they have a high-deductible health insurance plan. They are triple tax-advantaged:

  • You get a tax break going in — the money you contribute to the account, usually through payroll deductions, goes in pretax.
  • The money you contribute grows tax-free.
  • If you use it for out-of-pocket health care expenses, including deductibles, distributions are tax-free as well.

A 20 percent penalty and income taxes apply if you take money out before you’re 65 and spend it on something other than eligible health care expenses.

A health savings account is not a use-it-or-lose-it account like a health care flexible spending account — employees can keep their HSA even if they change employers. It’s a great way to build up tax-free savings for retirement health care needs — COBRA, Medicare and long-term care premiums are all eligible expenses.

If you don’t already have an HSA, it’s a safe bet that one will be in your future. How much you’ll be able to save depends on what’s going on in Congress, and around the country with citizens vocalizing their opinions.

In addition to doubling HSA contribution limits, the bill also helps HSAs by cutting the penalty for nonmedical-related withdrawals before age 65 from 20 percent since the enactment of the ACA back to 10 percent. It also establishes the right to pay for over-the-counter medications without a prescription with your health savings account dollars.

While the ACA allows parents to add their adult children up to age 26 to their health plans, the tax laws regarding HSAs haven’t changed — an adult child must still be considered tax-dependent for an adult child’s medical expenses to qualify for payment or reimbursement from a parent’s HSA. So, if account holders can’t claim a child as a dependent on their tax returns, then they can’t spend HSA dollars on services provided for that child.

Also, the Department of Health and Human Services (HHS) established annual out-of-pocket or cost-sharing limits under the ACA. HHS has published its 2018 ACA out-of-pocket limits — the ACA requires the out-of-pocket maximum to be updated annually based on the percent increase in average premiums per person for health insurance coverage.

Experts note that with HSAs slated to play a pivotal role in health care reform, contribution limits may soon be uncoupled from traditional inflation increases, giving Americans greater capacity for care-related tax savings. But for now, everything is still on the drawing board.

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