Tax Update for August 2018
- Avoid a tax surprise; adjust your paycheck withholding now!
- Idaho's new tax laws – What you need to know
- Sales tax on business rewards programs
- Sourcing guaranteed payments for partnerships
- Sign up for our Business Basics class
- New sales and income tax web guides
- Find fuels resources on new hub page
Here's the August 2018 issue of Tax Update — our newsletter for the business community.
This edition features articles about updating your paycheck withholding, new tax laws, sales tax on business rewards programs, our Business Basics class and more!
Recent tax laws have changed the amount of income taxes withheld from employee paychecks.
You could have an unexpected tax bill when you file your 2018 income tax return if you don't withhold enough tax.
We urge you to review your federal Form W-4 now to see if you have the right amount of federal and state income taxes withheld from your paycheck.
Steps to take:
- Use the withholding calculator at IRS.gov to estimate your federal withholding.
- Use the 2018 W-4 Worksheet for Idaho at tax.idaho.gov to estimate your Idaho withholding.
- Make any needed changes to Form W-4 and give it to your employer.
Use the Form W-4 to update both your state and federal withholding. Idaho doesn't have a separate W-4 form. You should also update the withholding for Idaho if you've already updated your federal withholding. Using the federal allowance number for Idaho could cause miscalculations for your Idaho withholding.
For more information, visit our W-4 page, tax.idaho.gov/w4.
The 2018 Idaho Legislature passed tax laws affecting income tax rates, exemptions, adoptions, out-of-state retailers and veterans. Below are some of the highlights. For more details about the legislation, see the Legislature's website.
Idaho conforms to the Internal Revenue Code (IRC) for 2018
Idaho conforms to the IRC for the 2018 tax year. This includes:
- Increasing the standard deduction
- Eliminating personal and dependent exemptions
- Capping or eliminating most itemized deductions
- Adding K-12 and private school education expenses as qualifying expenses from a 529 Education Savings account
(House Bill 463 – Effective Jan. 1, 2018)
Lower tax rates, new child tax credit
The corporate and individual income tax rates have been reduced by 0.475 percentage points. The individual income tax rates now range from 1.125% to 6.925%. The corporate income tax rate is now 6.925%. Also, a new Idaho child tax credit of $205 is available for children 16 and under to help offset the loss of the dependent exemption.
(House Bill 463, House Bill 675 – Effective Jan. 1, 2018)
Timeframe expanded for reporting change in certain income
You now have 120 days to notify Idaho when you:
- Have a change in federal taxable income, or
- Have a change in state income used to claim a credit for taxes paid to another state.
The previous timeframe was 60 days. Note: Notify the Tax Commission in writing or by filing an amended return when you owe tax. File an amended return to receive a refund.
(House Bill 382 – Effective July 1, 2018)
New income tax credit for contributions to medical residency organizations
You can take an income tax credit for contributions to residency placement programs accredited by the Council for Graduate Medical Education.
(House Bill 451 – Effective Jan. 1, 2018)
Tax deduction increased for adoption fees and costs
The amount of allowable legal fees, medical expenses and other costs you can deduct from taxable income if you adopt a child has increased to $10,000. It was $3,000.
(House Bill 453 – Effective Jan. 1, 2018)
Exemption for free clinics
Sales to or purchases by members of the Idaho Association of Free and Charitable Clinics are exempt from sales and use taxes.
(House Bill 51 – Effective July 1, 2018)
Online affiliate nexus defined for out-of-state sellers
Idaho presumes that an out-of-state seller is an Idaho retailer if:
- The out-of-state seller has an agreement with an Idaho retailer who directly refers potential buyers to the out-of-state seller for a commission that's paid on each resulting sale, and
- Total sales to Idaho buyers from these agreements exceed $10,000 in the preceding 12 months.
Idaho retailers must apply for a seller's permit with the Tax Commission and collect and forward the sales tax on any sales made to Idaho customers.
(House Bill 578 – Effective July 1, 2018)
Property tax reduction for 100% disabled veterans
Veterans who are 100% service-connected disabled can get a reduction in their property taxes of up to $1,320 a year. The surviving spouse of the deceased veteran can continue to receive reduced property taxes for the home the veteran lived in.
(House Bill 492 – Effective for tax year 2019)
Property tax exemption for property under construction
Property that will be used for a tax-exempt purpose is exempt from property tax while it's under construction.
(House Bill 559 – Effective retroactive to Jan. 1, 2016)
Exemption for new capital investments clarified
The tax exemption for new capital investments of at least $1 billion:
- Includes operating property
- Includes personal property and fixtures constructed off site but installed on site
- Starts when a building permit is issued rather than the first inspection of an improvement on the property.
(House Bill 591 – Effective Jan. 1, 2018)
FBI background check on Tax Commission employees
The Tax Commission will conduct an FBI nationwide background check on employees and contractors who have access to federal tax information.
(Senate Bill 1234 – Effective July 1, 2018)
Sales tax may be due on the value of "free" items given to your customers if your business has a loyalty or rewards program.
Buy "x" number of goods, get something free program
Sales tax isn't due on the value of a free reward if:
- You, the seller, manage your rewards program,
- The value of the reward isn't reimbursed by a third party such as a manufacturer, and
- The free item is a reward for previously buying "x" number of items.
Your business sells food and beverages. After a customer buys 10 entrees, the next one is free. Your customer buys a sandwich valued at $8.99 and presents a loyalty card showing 10 qualifying past purchases. You ring up the $8.99 sandwich as a free reward. Sales tax isn't due on the value of the reward.
This situation is similar to using a retailer discount coupon as described in Idaho Sales and Use Tax Administrative Rule 051. Sales tax is calculated on the discounted sales price when a retailer coupon is redeemed. A "retailer" coupon is one that's issued by the seller, where the seller isn't reimbursed by another party.
Rewards earned through and/or reimbursed by a third party
Sales tax is due on the value of a free reward if:
- Your rewards program is administered by someone other than you,
- Free items can be earned through a credit card or other third-party transaction, and
- Your customer isn't an exempt buyer.
Your business sells food and beverages. Your customer uses rewards points earned through a credit card program to buy a meal valued at $14.99 on your menu. Sales tax is due on $14.99.
This situation is similar to using a manufacturer's discount coupon as described in Idaho Sales and Use Tax Administrative Rule 051. When a manufacturer coupon is redeemed, sales tax is calculated on the sales price before applying the coupon.
Tax may be due on the value of a "free" room if you have a loyalty or rewards program that rewards customers with free nights.
Sales tax and other room taxes aren't due on the free night if:
- You administer your own rewards program, and
- You can clearly document that a free night of lodging was given as a reward for staying "x" number of nights.
Room taxes are due on the value of the free room if:
- A third party administers your rewards program, and
- Customers can pay for nights with points earned through credit card purchases, by buying points directly from the third party, or by other means.
The value is the amount a customer would have paid for the room. Room taxes include sales tax, travel and convention tax and any auditorium district tax that applies to your area.
Note: Room taxes aren't due if the "free" night applies to a stay that qualifies for an exemption (e.g., it's part of a continuous stay over 30 days). However, you must document the stay as an exemption.
The Tax Commission has determined the threshold for guaranteed payments in tax year 2018. Partnerships should:
- Source guaranteed payments of up to $263,000 to an individual partner as compensation for services. Source these payments to the state where the partner performs the services.
- Source any amount over $263,000 to Idaho based on the partnership's Idaho apportionment factor.
- For retired partners, source all compensation to the partner's state of domicile.
Do you know which tax permits your business needs? Do you need help completing your sales tax or income tax withholding returns? Take our free Business Basics class to find the help you need and get answers to your tax questions. We offer classes in our Boise, Coeur d'Alene and Lewiston offices. We also provide classes on request.
We're transforming our brochures into web guides and updating them for easier reading. Here's a list of our newest web guides. Check them out!
- Wholesalers guide. (Replaces brochure #3, Wholesalers)
- Retailers guide. (Replaces brochure #4, Retailers)
- Exemptions guide. (Replaces brochure #5, Retailers and Wholesalers: Making Exempt Sales)
- Farming and Ranching guide. (Replaces brochure #31, Farming & Ranching)
- Logging Exemption guide (Replaces brochure #32, Logging)
- Lumber Manufacturing guide. (Replaces brochure #33, Lumber Manufacturing)
- Mining guide. (Replaces brochure #34, Mining)
We've put links to our fuels tax resources in one central location – our new Fuels Tax hub page. The page includes new information on fuel types such as dyed diesel, gaseous special fuels and racing fuel. It also includes new guides for Idaho production plants and fuels terminal operators. And it has updated information on distributors and the transfer fee.