There have been many changes to the US tax laws since the passage of the Tax Cuts and Jobs Act of 2017. Tax filers are finding out some of the realities of the tax law changes as they are filing their tax returns for the first time with the new tax forms.
One of the changes that will affect all tax filers is the elimination of the personal exemption. When filing 2017 taxes, an individual could deduct $4,050 from their taxable income before taxes were calculated. If a summer camp professional made less than $4,050 for the season, their taxable income would be zero. Therefore, most payroll programs did not withhold federal taxes on the first $4,050 of income. In 2018, that personnel exemption is gone; taxes will be calculated on the first dollar earned. Individuals who are US citizens will be able to take the standard deduction of up to $12,000 for single and dependent filers — meaning they can reduce their taxable income amount (which is used to calculate their taxes owed) by $12,000. For most seasonal camp professionals, this will still result in no taxes owed.
However, if the individual is a non-resident tax filer, they are not eligible for the standard deduction. Therefore, they will have to pay taxes on first dollar, and are required to file a 1040NR tax return each year they have income in the US.
How Does This Affect My Camp?
Camps need to consult with their payroll providers and/or tax attorneys to verify they are deducting the correct amount of federal taxes for all of their employees, regardless if they are a US citizen or a non-resident. If camps have employees who are non-residents, camps need to make sure they are designated as such in their payroll system to ensure they are withholding the correct amount of taxes. Per IRS Publication 515, the entity paying the non-resident tax filer is the withholding agent. The withholding agent is liable for the taxes being withheld. If a camp fails to withhold the correct amount of taxes, and the non-resident tax filer fails to satisfy its US tax liability, then both the camp and the non-resident tax filer are liable for the tax, and any interest and penalties.
Based on these changes, if a camp has staff who are non-residents, the camp may need to have a discussion with those staff members to make sure they are aware of the changes in the way the taxes are calculated/deducted. Starting with 2018, non-resident tax filers are required to file a tax return, regardless of the amount earned. Non-resident tax filers cannot use online tax services such as TurboTax or H&R Block to file their taxes, as they do not offer the tax form 1040NR. It is important to make sure they are using the correct tax services to avoid potential penalties and fines for the staff member in the future.