What to tell employees about tax reform and 2018 withholding

The rushed passage of tax reform legislation at the end of 2017 means employees now have little reliable guidance on how to manage income tax withholding on their 2018 pay.

As an HR pro, it’s not appropriate for you to provide financial advice to employees. However, you are sure to receive withholding-related questions. Here’s a framework for fielding them.

Background: The Tax Cuts and Jobs Act suspended through 2025 the system of personal exemptions that guided income tax withholding for decades. It almost doubled the standard deduction. In many places, deductions of state and local taxes were severely reduced. All those factors mean many if not most employees should adjust the amount of tax withheld from their paychecks.

The IRS on Jan. 11 released new 2018 withholding tables that payroll departments will use to determine employees’ withholding.

Sometime in February, the IRS is expected to release a new online withholding calculator that should help employees fine-tune their withholding decisions.

BP Handbook D

Finally, later this year, the IRS will probably release new W-4 withholding forms that most employees will want to refile. In the meantime, your payroll department will continue to withhold according to the forms they have on file for each employee.

Advice: Regularly touch base with your colleagues in payroll to stay abreast of how your organization is handling employee withholding.

Keep up with the critical payroll issues affected by tax reform at the blog site of our sister newsletter, Payroll Legal Alert.