2018 Tax Withholding Information Is Here — W-4 Update Coming Soon

The Internal Revenue Service (IRS) has released income tax withholding information for 2018 (Notice 1036) that shows new rates for employers to use. The 2018 withholding tables reflect changes due to the tax reform legislation enacted last month. A withholding table shows payroll service providers and employers how much tax to withhold from employee paychecks, given each employee’s wages, marital status and number of claimed withholding allowances.

The IRS instructs employers to begin using the 2018 withholding tables as soon as possible but no later than Feb. 15, 2018. Employers should continue to use the 2017 withholding tables until they implement the 2018 withholding tables.

Once employers implement the new tables, many employees will begin to see changes in their paychecks reflecting the tax reform.

The new tax law makes a number of changes for 2018 that affect individual taxpayers. The new tables reflect the:

  • Increase in the standard deduction;
  • Repeal of personal exemptions; and
  • Changes in tax rates and brackets.

For people with simpler tax situations, the new tables are designed to provide the correct amount of tax withholding. The revisions are also aimed at avoiding over- and under-withholding of tax as much as possible. The tables’ release is the first in a series of steps that the IRS will take to help improve the accuracy of withholding following the new tax law.

More information on the updated withholding tables is available in the IRS’s Withholding Tables Frequently Asked Questions.

W-4 Update Coming Soon

The IRS is currently working on revising the Form W-4 to 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 the repeal of dependent exemptions.

Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4.

Employees do not need to fill out a new W-4 right now — the new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This, according to the IRS, will minimize the burden on taxpayers and employers.

The IRS is also revising the tax withholding calculator on their website to help employees update their withholding in response to the new law or other changes in personal circumstances in 2018. The IRS 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.

On the Horizon

The IRS plans to help educate taxpayers about the new withholding guidelines and calculator. The effort will be designed to help workers ensure that they are not having too much or too little withholding taken out of their pay.

Check out the IRS’s Resources for Tax Law Changes for more information.

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.

“The IRS appreciates the help from the payroll community working with us on these important changes,” said Acting IRS Commissioner David Kautter, in a statement. “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.”

Want to know more about deductions from wages? CalChamber members can find forms and Q&As in the HR Library. Not a member? See how HRCalifornia can help you.

Staff Contact: Gail Cecchettini Whaley