On January 11, the IRS released updated 2018 income tax withholding tables, which reflect changes made by the new Tax Cuts and Jobs Act. This is the first in a series of steps that the IRS will take to help improve the accuracy of withholding following major changes made by the new tax law, the IRS stated.
The updated withholding information, shows the new rates for employers to use during 2018. Employers should begin using the 2018 withholding tables as soon as possible, but not later than February 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.
To view the tables in Notice 1036, click here: https://www.irs.gov/pub/irs-pdf/n1036.pdf
Many employees will begin to see increases in their paychecks to reflect the new law in February. According to the IRS, “the time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid — generally weekly, biweekly or monthly.”
The new withholding tables are designed to work with the W-4 forms that workers have already filed with their employers to claim withholding allowances. This minimizes the burden on taxpayers and employers, the IRS stated. At this time, employees don’t have to do anything.
Why the Changes Are Needed
The new law makes a number of changes for 2018 that affect individual taxpayers. The new tables reflect:
- An increase in the standard deduction
- A repeal of personal exemptions
- Changes in tax rates and tax brackets
For people with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding. The revisions are also aimed at avoiding over- and under-withholding of tax as much as possible.
To help people determine their withholding, the IRS is also revising the withholding tax calculator on IRS.gov. The tax agency anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once it is released.
The IRS is also working on revising Form W-4. The revised Form W-4 and the revised calculator will reflect additional changes in the new law, such as:
- Changes in available itemized deductions
- Increases in the child tax credit, the new dependent credit, and repeal of dependent exemptions
The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job. Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4.
In addition, the IRS announced it will help educate taxpayers about the new withholding guidelines and the calculator. The effort will be designed to help workers ensure that they aren’t having too much or too little withholding taken out of their pay so that when they file their tax returns they don’t get a surprise.
Some Expressing Concern
Two Democratic congressmen are questioning whether enough taxes will be taken out of the checks of employees under the IRS’s 2018 withholding tables. In letters sent to federal tax officials, Senator Ron Wyden (OR) and Representative Richard Neal (MA) expressed concern that the new withholding tables would “result in millions of taxpayers receiving larger after-tax paychecks this election year but ultimately owing federal income tax when they file in 2019.”
More Changes Next Year
For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and share information on changes in the new tax law that impact withholding.
Acting IRS Commissioner David Kautter noted: “Payroll withholding can be complicated, and the needs of taxpayers vary based on their personal financial situation. In the weeks ahead, the IRS will be providing more information to help people understand and review these changes.”
If you have questions about whether you will have enough taxes taken out of your paycheck for 2018, consult with your tax advisor.