IRS Releases New Withholding Tables

IRS Releases New Withholding Tables Reflecting Changes Resulting from the Recent Tax Act

The IRS just released new 2018 withholding tables in Notice 1036.  IRS is asking employers to begin using them as soon as possible, but not later than 2/15/18.  The IRS is not expecting employees to update their W-4s.  IRS is revising its withholding tax calculator and should have it ready by the end of February.  Employees will likely want to assess whether the withholding amounts are appropriate.  Please contact a member of the HBK Dealership Industry Group (317-886-1624 or rcollins@hbkcpa.com) with questions about the proper amount of withholding.

The Internal Revenue Service released Notice 1036, which updates the income-tax withholding tables for 2018 reflecting changes made by the recent tax reform legislation. The updated withholding information, posted on IRS.gov, 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 Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.

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 will minimize burden on taxpayers and employers. Employees do not have to do anything at this time.

The new 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 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 revising the withholding tax calculator on IRS.gov. 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. The IRS is also working on revising the Form W-4. 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 will help educate taxpayers about the new withholding guidelines and the 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. For 2019, the IRS anticipates making further changes involving withholding.

By: Rex Collins, CPA, CVA

Principal, HBK CPASs & Consultants