Employers should update their employees withholding as soon as possible but no later than February 15, 2018 according to the IRS. Until then, employers should continue to use the 2017 withholding tables. The IRS released Notice 1036 with updated income tax withholding tables on January 11 that reflects changes made by the Tax Cuts and Jobs Act enacted December 22. The updated withholding information shows the new rates for employers to use during 2018 and reflects the increase in the standard deduction, the repeal of personal exemptions, and new tax rates and brackets. For employees with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding and are also intended to avoid over- and under-withholding of tax.
The new withholding tables are designed to work with Forms W-4, Employee’s Withholding Allowance Certificate that employees already have on file, so employees do not have to fill out new ones at this time. The IRS plans on issuing a new Form W-4 in the near future and is also working on revising the withholding tax calculator available on its website which it expects will be ready by the end of February.
PERCENTAGE METHOD TABLES
Below is an example of the new Tables based on Annual salaries. The wage amounts shown in the tables are net wages after the deduction for total withholding allowances.
The 2018 Percentage Method Withholding Tables can be found in Notice 1036 at https://www.irs.gov/pub/irs-pdf/n1036.pdf.
The withholding allowance amounts by payroll period have changed. For 2018, they are shown below in comparison to 2017:
The IRS also posted a “frequently asked questions” page on its website to explain the new withholding tables to taxpayers.
The IRS says it will make additional changes to its withholding tables in 2019 and work with employers and the payroll industry on designing these changes.
According to the Trump administration, ninety percent of wage earners will see an increase in their paychecks under the new withholding rates dependent on how quickly employers implement the new tables and how often the employees are paid.