IRS has issued new income tax withholding tables for 2018 that reflect changes made by the Tax Cuts and Jobs Act (the Act). It also issued an information release and frequently asked questions that explain the use of the new tables.
Background. The Act (PL 115-97, 12/22/17) made major changes to the income tax rates, increased the standard deduction, and did away with personal exemptions, effective for tax years beginning after Dec. 31, 2017.
New withholding tables. IRS has now released Notice 1036, Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding, which updates the income tax withholding tables for 2018 to reflect changes made by the Act. It has also provided information that explains the use of the new tables and related subjects.
The new tables have been posted to IRS.gov. 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 they implement 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. As a result, employees do not have to do anything at this time.
IRS is revising the withholding tax calculator on IRS.gov. IRS anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once the calculator is released.
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.
For 2019, IRS anticipates making further changes involving withholding. IRS will encourage workers to file new Forms W-4 next year.
RIA observation: Senate Finance Committee Ranking Member Ron Wyden (D-OR) and House Ways and Means Ranking Member Richard Neal (D-MA) have questioned whether IRS was being pressured by the Trump Administration to produce withholding tables that would result in underwithholding (see Weekly Alert ¶ 38 1/11/2017) and have requested that the Government Accountability Office (GAO) independently analyze the new tables.
References: For withholding on wages, see FTC 2d/FIN ¶ H-4220; United States Tax Reporter ¶ 34,014.