The IRS released Notice 1036 on January 11 to update the income-tax withholding tables for 2018, after passage of the tax reform legislation under the Tax Cuts and Jobs Act (the Act). The new withholding tables are needed to reflect the changes in tax rates and tax brackets, increased standard deduction and repeal of personal exemptions that were included in the new tax reform law. Withholding tables tell employers, as well as payroll service providers, how much tax to withhold from employee paychecks, given each employee’s wages, marital status, and the number of withholding allowances they claim. Employees provide to their employers with IRS Form W-4 to determine the amount of federal income tax to withhold from their paychecks.
Notice 1036 advised employers to begin using the 2018 withholding tables no later than February 15, 2018 and that employers should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.
On January 29. the IRS issued Notice 2018-14 where it stated that the new 2018 Form W-4 may not be released until AFTER February 15, 2018. The IRS continues to work on revising Form W-4 to reflect the changes made by the Act, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit, and the repeal of dependent exemptions.
The Act does not mandate that employees furnish new Forms W-4 for 2018 and expressly permits the IRS to administer income tax withholding for 2018 without regard to the changes in the withholding rules and the suspension of personal exemptions.
Notice 2018-14 also:
- extends the use of the existing 2017 Form W-4, Employee’s Withholding Allowance Certificate, to claim exemption from withholding for 2018 until the IRS can issue a new 2018 Form W-4
- temporarily suspends the rule that employees must notify their employers of changes in status that affect their withholding within 10 days
- provides the new rate of optional withholding on supplemental wages
- provides that withholding on periodic payments (such as for annuities) when no withholding certificate is in effect is based on treating the payee as married and claiming three withholding allowances
Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4. Taxpayers ought to check in order to ensure that they are not having too much or too little tax taken out of their pay. Those that need to pay particular attention are those taxpayers who in the past itemized their deductions, couples with multiple jobs or individuals with more than one job a year or those with more than one income in their household. Don’t be a victim of your own making. Consult your tax specialist to ensure that you are not under-withheld or over-withheld.