New Withholding Tables Released
You may soon see an increase in your net check as a result of tax reform.
The Tax Cuts and Jobs Act made a number of changes for 2018 that affect individual taxpayers, including an increase in the standard deduction, repeal of personal exemptions, a reduction in tax rates and widening of the lower tax brackets. The Internal Revenue Service released Notice 1036, which provides updated withholding tables for 2018 that reflect the changes made by the new tax law. With these new withholding tables expected to be in effect by mid-February, you may see an increase in your net paycheck. Withholding taxes are designed to be approximately equal to an individual’s tax liability for the year. The 2018 revisions to the Percentage Method Tables are aimed at avoiding over- and under-withholding on employee wages.
What should Employers do?
Employers should have implemented the new 2018 withholding tables at this time, as they were expected to do so no later than February 15, 2018. Employers who have not yet implemented the new withholding tables should do so as soon as possible.
The updated withholding tables work with the Forms W-4 that employers already have on file for existing employees and employers should not collect new Forms W-4 at this time. The IRS is working on a revised Form W-4 for use by new hires and existing employees who wish to update their withholding in response to the new law or changes to their personal circumstances in 2018, however, until then, continue to use the old form W-4.
New Rate for Supplemental Wages
According to Notice 1036, employers using the optional flat rate method must withhold 22 percent of the supplemental wages paid to an employee during a calendar year (up to $1 million); and 37 percent on supplemental wages in excess of $1 million. The rate for backup withholding when the payee fails to furnish a correct taxpayer identification number is 24 percent.
What should Individuals do?
Employees are not required to take any specific action related to their withholding as a result of the new withholding tables. However, no two taxpayers’ scenarios are identical. For certain taxpayers, factors such as limitations on state tax deductions and itemized deductions, elimination of dependents and other adjustments from tax reform may offset the benefits from the lower tax rates. As a result, you may wish to contact your WNDE tax professional to discuss your personal tax situation.
Contact your WNDE Tax Professional
Be sure to contact your WNDE tax professional to discuss the impact of tax reform on your taxes and confirm that your adjusted federal withholding rates are adequate for your personal tax situation.