Our February 1, 2018 blog post reported on the late February release of the Form W-4 and guidance on the income withholding rules that changed under the Tax Cuts and Jobs Act. On February 28, 2018, the federal Internal Revenue Service (IRS) released the new 2018 Form W-4 and an updated withholding calculator.

Why a Withholding Calculator?

The IRS encourages the use of the withholding calculator for a quick paycheck checkup in light of the changes to the tax law for 2018. According to the IRS, employees may be encouraged to use the calculator to ensure the correct tax amount is being withheld from their paychecks. For example, reviewing withholding may help protect employees against having too little tax withheld and facing an unexpected tax bill or penalty during next year’s tax season. Alternatively, with the average refund being $2,800, the IRS anticipates that some employees may have less tax withheld up front and instead receive more in their paychecks. If an employee needs to make changes to his or her withholding, the calculator provides the necessary information to fill out a new W-4.

Next Steps

Make sure your employees know about the availability of the calculator. Only employees changing their withholding need to complete a new W-4, and they may use results from the calculator to complete the new form. Encourage those employees to submit updated W-4s as soon as possible to ensure their withholdings are accurate.

The IRS also suggests that if employees follow the calculator’s recommendations and change their 2018 withholding, they should recheck their withholding at the beginning of 2019 to protect against having too little withheld. This is important where an employee reduces his or her withholding sometime during 2018 because a mid-year withholding change in 2018 may have a different full-year impact in 2019.

Originally Published By ThinkHR.com

If you’ve been getting questions from your employees about completing new 2018 W-4 forms to take advantage of the tax reform rules, we’ve finally received some answers. You can continue to rely on the current W-4 forms for now until the new 2018 form is released in late February.

The January 29th Internal Revenue Service (IRS) Notice 2018-14 provides additional guidance on the income withholding rules that were changed under the recently passed Tax Cuts and Jobs Act. The guidance:

  • Extends the effective period of Forms W-4 furnished to claim exemption from withholding for 2017 until February 28, 2018.
  • Permits employees to claim exemption from withholding for 2018 by temporarily using the 2017 Form W-4. This procedure will expire 30 days after the 2018 Form W-4 is released.
  • States that employees experiencing a change in status that causes a reduction in the number of withholding exemptions are not required to furnish employers with new withholding certificates until 30 days after the 2018 Form W-4 is released.
  • Provides that employees who have a reduction in the number of withholding allowances solely due to changes made by the Tax Cuts and Jobs Act are not required to furnish employers with new withholding certificates during 2018. However, employees may choose to update their withholding at any time in response to the act. Employees who choose to update their withholding may use the 2017 Form W-4 instead of the 2018 Form W-4 to report changes in withholding allowances until 30 days after the 2018 Form W-4 is released.
  • Confirms that the optional withholding rate on supplemental wage payments is 22 percent for 2018 through 2025.
  • Specifies that, for 2018, withholding under IRC 3405(a)(4) on periodic payments when no withholding certificate is in effect will be based on treating the payee as a married individual claiming three withholding allowances.

In addition to the guidance, the IRS also released a new Publication 15, (Circular E), Employer Tax Guide, for 2018. Publication 15 includes the 2018 withholding tables and explains an employer’s tax responsibilities, such as withholding, depositing, reporting, paying, and correcting employment taxes.

 

Originally Published By ThinkHR.com

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