Know What to Withhold Under New Tax Law With This IRS Noticeby
The IRS has released Notice 1036, Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding, that indicates changes made since the new tax law was enacted in December.
According to the IRS, it is the first of several actions the agency will take to help improve the accuracy of withholdings since the new law’s significant changes.
Taxpayers could begin seeing paycheck changes in February. However, that will depend on how quickly their employers implement the new tables and how often taxpayers are paid.
Employers should begin using the new rates as soon as possible but no later than Feb. 15, the IRS states. They can continue using 2017 withholding tables until they’ve put the 2018 tables in place.
To reduce the burden on taxpayers and their employers, the new withholding tables are designed to work with the Forms W-4 that workers already filed with employers to claim their withholdings.
“The IRS appreciates the help from the payroll community working with us on these important changes,” said Acting IRS Commissioner David Kautter. “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."
Here’s a snapshot of 2018 changes:
- The new tables indicate the increase in the standard deduction, repeal of personal exemptions, and changes in tax rates and brackets.
- The new tables are crafted to show the correct amount of withholdings, so as to avoid over- or under-withholding taxes. Taxpayers with more complex situations face possible under-withholding. People who itemize their deductions, couples with multiple jobs, and people with more than one job in a year should review their tax situations, the IRS advises. However, most people are over-withheld on their taxes, the agency states.
- The withholding tax calculator on the IRS website will be revised and should be available by the end of February.
- Form W-4 will be revised to show 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 is released, employers and taxpayers should use the 2017 Form W-4.
The IRS expects to make more withholding changes in 2019. The agency 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, according to the IRS.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.