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Payroll Today

2018: The year withholding takes center stage

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Alice Gilman

by on
in Payroll Today

The Internal Revenue Service has finally released the 2018 Notice 1036. The notice includes the official 2018 withholding allowance amounts and updates the percentage method tables to reflect changes made by the Tax Cuts and Jobs Act, which was enacted last month. The IRS says that this is the first step it’s taking to help improve the accuracy of withholding. You should put the tables in effect by Feb. 15.

Reminder: Unless employees claim an exemption from federal income tax withholding they don’t need to provide you with updated W-4s, at least not yet.

TCJA complications

The TCJA made substantial changes to the personal income tax provisions of the tax code, which will affect practically all of your employees. The 2018 percentage method 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 IRS says that new tables should produce the correct amount of income tax withholding. However, things will be more complicated for employees who used to itemize their deductions or claim various credits. For those employees, a trip to the IRS’ withholding calculator will probably be necessary. The IRS says it should have its withholding calculator updated by the end of February.

You should encourage all employees to check their withholding, regardless of their tax situation. We’ll let you know when the IRS is finished rebuilding their calculator.

The IRS is also revising W-4 forms. Until a new W-4 is issued, employees should continue to use their current forms.

Heads up: The Washington Post reported on Jan. 11 that once the IRS releases the new W-4, all employees will need to refile. While we can’t confirm that, you should be aware of the burden this will create.

More changes for 2019

The IRS anticipates making further changes to withholding for 2019, although it hasn’t said what. Hint: It wants you to encourage employees to refile their W-4s.

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