LAKELAND — Barely two weeks after Congress approved a major federal income tax reform, the new law has already trickled down to the Polk County economy.
Some 16 employees of the three Lakeland branches of Fifth Third Bank found out soon after the law passed that they and the company’s 13,500 full-time employees nationwide would get a $1,000 bonus stemming from approval of the new law. The bonuses arrived Friday.
Fifth Third also announced it was raising the company’s minimum wage for about 3,000 full- and part-time U.S. workers to $15 an hour. They’ll see that increase in paychecks beginning next month.
The wage increase will be substantial for the lower-wage workers, many of them earning just $10 to $12 an hour currently, said Barb Scherer, senior vice president of communications for Florida in Orlando.
“The higher wage is an important step to help support employees, their families and our communities,” Scherer told The Ledger.
Toshiko “Tee” Threatt-Monroe, the lead customer-service representative at Fifth Third’s Lakeland branch at 435 S. Combee Road, said she heard rumors of a bonus but didn’t believe it until the company announced it in an email on Dec. 22, three days after the tax bill passed.
The announcement excited the entire office, she said.
“I was excited as well,” Threatt-Monroe said. “I read the email and said to myself, ‘Oh my God, this is actually happening.”
Threatt-Monroe said she has no immediate plans to spend the money. One of her New Year’s resolutions is to save more, she said, so it will go straight to her bank account.
The bonus and pay raise will cost the bank more than $25 million, said Scherer, who had no information on how much tax savings Fifth Third expects to get in 2018.
The company employs about 18,000 people, she added, so upper and middle managers will not benefit from the program.
Local business officials told The Ledger last week they expect the new tax law will benefit thousands of other Polk employees, though none had specific plans for what to do with their tax savings.
“It (the tax bill) came together so fast, it really blind-sided us,” said Steve Young, chief operating officer at CenterState Bank Corp. in Winter Haven. “Certainly there’s an element that means we’re going to invest in our employees. Certainly there’s an element that means we’re going to invest more in our community, which means more lending.”
While much national news media has focused on the reduction of the top corporate rate from 35 percent to 21 percent, most of the so-called “C-corporations” handled by his firm did not pay that rate, said Tom Jennings of Thomas E. Jennings & Co. CPAs in Winter Haven. A C-corporation is the standard corporate entity that is taxed separately apart from its owners.
“Most local C-corporations are smaller entities and usually pay out taxable income to get below the $50,000 taxable income, which under old law was taxed at 15 percent,” Jennings said.
Those corporations will actually see their rate go up to 21 percent, the new rate for all taxable C-corporation income, said Michelle Hurst, a partner at Bunting, Tripp & Ingley LLP, the Lake Wales accounting firm. On a $50,000 income, that means an additional $3,000 in taxes.
Most Polk companies are S-corporations, also known as “pass-through” entities because corporate profits pass on to the owners and the taxes are paid on their personal federal income tax returns.
“We don’t have a lot of C-corporations. A lot changed to S-corporations,” said Janice Jones, a principal at CliftonLarsonAllen, an accounting firm in Lakeland and Winter Haven. “I could probably count on one hand the number of C-corporations I have.”
The new tax law gave S-corporations a significant break by allowing them to deduct 20 percent off their income, Hurst, Jones and Jennings said. That deduction begins to phase out at $315,000 of income for a married couple, the traditional mom-and-pop business.
Most S-corporations in Polk probably fall below that limit, Young said.
However, many S-corporations that provide personal or business services, including accountants, medical practices and attorneys, will not get the 20 percent deduction.
The bottom line, the local business officials told The Ledger, is that most Polk businesses will benefit from the federal tax reform.
“These tax law changes really benefited corporations the most,” Hurst said. “Most of them are passing along money to employees and pension plans. There’s still an incentive to do that. Our firm is a big proponent of pension plans.”
Jones agreed.
“I think it will benefit corporations because, in addition to lower C-corporation rates, there’s the larger deduction for S-corporations. That will certainly benefit them,” she said.
Hurst and Jones agreed many of their clients have talked about passing some of their tax savings to employees, although few have formed definite plans as Fifth Third has.
Young said he sees short-term and a long-term benefits to the new tax law.
The short-term benefit is letting corporations keep more money, which they will use to invest in employees and their businesses, he said.
CenterState is looking at pay increases and additional benefits to employees, Young added.
“We’re trying to run something that’s sustainable,” he said. “We’re going to do anything for employees in that vein.”
In the long-term, the new tax code will accelerate the trend of companies moving from high tax states to low tax states such as Florida, Young said.
That’s because the new tax law caps the deduction for state and local taxes, such as income and property taxes, at $10,000, he said. Florida will benefit because it has no state income tax.
“This tax plan is really positive for small businesses. It will allow them to make more investments in their people and the business,” Young said. “If the environment is good for small business, it’s good for the banks.”
Kevin Bouffard can be reached at kevin.bouffard@theledger.com or at 863-401-6980.