IRS Issues New Form W-4 and Updates Tax Withholding Calculator

Alert employees to check their tax withholding and possibly file a new W-4

Stephen Miller, CEBS By Stephen Miller, CEBS March 9, 2018
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Editor's Note: Due to significant interest from readers, we're republishing our news article on the new Form W-4 from the IRS, along with a calculator to help employees figure out how much to withhold from taxes for 2018. The new Tax Cuts and Jobs Act made several changes to tax law, and workers might want to adjust their withholding amounts.


At the close of February, the IRS released an updated tax withholding calculator on IRS.gov and issued a new Form W-4, Employee's Withholding Allowance Certificate. Employees can use the online calculator to check their 2018 tax withholding following passage of the Tax Cuts and Jobs Act in December. If employees choose to adjust their withholding, they can now complete and submit the revised Form W-4 to their employer.

The IRS also posted new Withholding Calculator Frequently Asked Questions.

"Following the major changes in the tax law, the IRS encourages employees to check their paychecks to help ensure they're having the right amount of tax withheld for their personal situation," Acting IRS Commissioner David Kautter said in a statement.

The Tax Cuts and Jobs Act made changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions, and changing the tax rates and income brackets.

 "The IRS is not requiring employers to obtain new W-4s from their employees, as it revised the withholding tables to function with the old W-4 for 2018," said Laurie Savage, senior compliance analyst at Paychex, a payroll services company based in Rochester, N.Y. However, businesses should notify employees that using the withholding calculator at IRS.gov and, if necessary, submitting the new form W-4 to their payroll department may result in more accurate withholding, she advised.

Fine-Tuning Withheld Taxes

In January, the IRS released updated income-tax withholding tables for 2018 that reflected changes made by the tax reform law. The IRS instructed employers to begin using the 2018 withholding tables as soon as possible but not later than Feb. 15.

However, because of the significant changes in the new tax code, "employees may want to ensure that their current withholding is appropriate. Many employers may have already received inquiries, and now they can direct staff to the new 2018 W-4," Savage said.

"The new W-4 instructions state that if you use the withholding calculator, you don't need to complete any of the worksheets for Form W-4," she added. "This was not stated on the previous W-4 and may indicate that the withholding calculator is the most reliable method to get taxpayers' withholding closer to their tax liability."

The withholding changes do not affect 2017 tax returns due this April.

 "Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation," Kautter said. "Taking a few minutes can help taxpayers ensure they don't have too little—or too much—withheld from their paycheck."

 [SHRM members-only HR Q&A: Are employers required to have employees complete a new W-4 each year?]

A 'Paycheck Checkup'

By checking their withholding, employees can avoid facing an unexpected tax bill or penalty at tax time in 2019, or prevent having too much tax withheld, the IRS said. With the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks.

Employees with simple tax situations might not need to make any changes, the IRS advised. Simple situations include singles and married couples with only one job, who have no dependents, and who have not claimed itemized deductions, adjustments to income or tax credits.

Employees with more complicated financial situations, however, might need to revise their W-4 to make sure they have the right amount of withholding. Among those who should check their withholding are employees who:

  • Have two incomes or are in two-income families.
  • Work only part of the year.
  • Have dividends or capital gains from securities held in taxable accounts.
  • Claim the Child Tax Credit, the Earned Income Tax Credit or other credits.
  • Itemized deductions in 2017.
  • Have high incomes and more complex tax returns.

Advice to Employees

To change your withholding:

  • Use your results from this calculator to help you complete a new Form W-4, Employee's Withholding Allowance Certificate.
  • Submit the completed Form W-4 to your employer. Withholding takes place throughout the year, so it’s better to take this step as soon as possible.


When using the IRS withholding calculator, employees will need to have their latest pay statement handy, as they will be asked to enter the federal income tax withheld from their last salary payment and the total federal income tax withheld to date in 2018.

If employees follow the recommendations at the end of the calculator and change their withholding for 2018, remind them to recheck their withholding at the start of 2019 because a withholding rate adjusted in midyear 2018 will have a different full-year affect in 2019.


Lower Withholding, Bigger Paychecks

A mid-February spot survey by student loan firm LendEDU polled 1,000 workers who reported that the new withholding rates for 2018 had increased the amount of money in their paycheck. The results showed:

  • Take-home pay after taxes rose by 3.5 percent on average, with an average paycheck growing by $130.76.
  • 35.7 percent of workers are using the tax savings to pay down debt.
  • 12.8 percent are increasing their retirement savings. 


Related SHRM Articles:

IRS Issues New Withholding Tables for 2018, SHRM Online Compensation, January 2018

Tax Act Alters Executive Pay, Affects Bonus Deductions and Withholding, SHRM Online Compensation, December 2017

SSA Revises Payroll Tax Cap for 2018; Tax Bill Alters Rates and Brackets, SHRM Online Compensation, updated December 2017

 

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