IRS Aims to Issue New Paycheck Withholding Tables in January

Revised W-4 forms are also expected

By Stephen Miller, CEBS Jan 3, 2018
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Update: IRS Issues New Withholding Tables for 2018

The IRS released new withholding tables for 2018 on Jan. 11. Employers were told to adjust employee withholding rates by Feb. 15, 2018. Workers do not need to resubmit Form W-4.

HR compensation and payroll managers should work with their internal payroll departments and payroll vendors to ensure that their systems are appropriately adjusted in light of the IRS guidance. 

See the SHRM Online article IRS Releases New Withholding Tables for 2018.


The enactment of the 2017 tax act, which President Donald Trump signed into law on Dec. 22, means the IRS will issue revised tax withholding tables for employees' paychecks. Challenges of moving to the new withholding rates, as reported in the media, follow below. Some sources expect that all employees will need to submit a new Form W-4, Employee's Withholding Allowance Certificate, to adjust withholding federal taxes from their paychecks. Others say that the IRS has indicated that this will not be necessary. The expected IRS guidance should clear up this confusion.

Paychecks to Reflect New Withholding Rates in February

The IRS is preparing guidance on payroll withholding for 2018, and expects to issue initial withholding guidance (Notice 1036) in January reflecting the new legislation. This would allow taxpayers to begin seeing the benefits of the change as early as February. The IRS will be working closely with the nation's payroll and tax professional community during this process.
(IRS.gov)

Employees May Need to Provide HR with New W-4 Forms

By February, many people should begin seeing more money in their paycheck, since most will be paying 1 percent to 4 percent less in federal taxes. Payroll taxes paid into Medicare and Social Security will stay the same. Once the IRS releases the new withholding tables, employees will need to fill out a new Form W-4. Previous W-4 forms asked employees if they were married and about the number of children in their family. The new tax bill eliminates those exemptions, so the old W-4 will be invalid.
(Fox News)

W-4s Will Require Tweaking

ADP has reached out to the IRS with a proposal to reduce the number of exemptions per employee by an "increment" prior to their filling out a new W-4, something ADP's Peter Isberg, vice president of government relations for payroll processing, said the IRS is considering. Every year, federal withholding should approximate the tax liability so a taxpayer doesn't owe the government any money or get a refund. The delayed rollout of the new withholding guidelines could make it harder to get right this year, Isberg said. Michael O'Toole, senior director of government relations for the American Payroll Association, which represents payroll administrators at 17,000 employers, said getting employees to fill out a new W-4 correctly may be the biggest challenge. "The issue will be whether employees take the time to deal with the new W-4, take a look at their tax liability and make sure that they're having enough withheld," O'Toole said.
(Pittsburgh Post-Gazette / Chicago Tribune)

IRS Won't Force Workers to Submit New W-4 Tax Withholding Forms

The IRS said in an e-mail:

“We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February. The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time.”

After the new withholding rates are announced, employees "will want to look at withholding to make sure you are still satisfied with the amount being withheld," said Kathy Pickering, executive director of the Tax Institute at H&R Block. "Some people really like to have a tax refund as almost a forced savings plan. Others prefer … to get no refund at all."
(San Francisco Chronicle)


[SHRM members-only how-to guide:
How to Establish Salary Ranges]

2018 Income Tax Rates and Brackets

The law changes the tax rates and the brackets of taxable income to which the rates apply (see below). It also increased the standard deduction for individuals who do not itemize deductions, suspended the deduction for personal exemptions and increased the child/family tax credit.

The IRS encourages wage earners to consider a tax withholding checkup. "By adjusting the Form W-4, taxpayers can ensure that the right amount is taken out of their pay throughout the year," the IRS advised. "Having the correct amount withheld from paychecks helps to ensure that taxpayers don't pay too much tax during the year—and that they have money upfront rather than waiting for a bigger refund after filing their tax return."
(SHRM Online)

2018 Tax Rate Single Married Filing Jointly
10%
$0 to $9,525$0 to $19,050
12%
$9,525 to $38,700$19,050 to $77,400
22%
$38,700 to $82,500$77,400 to $165,000
24%
$82,500 to $157,500$165,000 to $315,000
32%$157,500 to $200,000$315,000 to $400,000
35%$200,000 to $500,000$400,000 to $600,000
37%Over $500,000Over $600,000
versus

2017 Tax Rate Single Married Filing Jointly
10%$0 to $9,325$0 to $18,650
15%$9,325 to $37,950$18,650 to $75,900
25%$37,950 to $91,900$75,900 to $153,100
28%$91,900 to $191,650$153,100 to $233,350
33%$191,650 to $416,700$233,350 to $416,700
35%$416,700 to $418,400$416,700 to $470,700
39.6%Over $418,400
Over $470,700

Deferring Tax Savings to Employees' 401(k)s

As a result of the new tax bill, "the average worker making less than $100K per year could see savings in the range of $1,000 to $4,000 per year," said Jeff P. Vogan, president and CEO of Premiere Retirement Planning & Wealth Management in Tucson, Ariz. "Employees will be able to save more money into their retirement accounts without lowering their existing take home pay," said Jairo Gomez, director of retirement plans at Hanson McClain Advisors, in Sacramento, Calif.

Employees saving through 401(k) plans don't have to wait until February to act. Ted Jenkin, CEO of oXYGen Financial in Atlanta, Ga., said it may be better for them to act in advance of the IRS or their HR department. He suggests employees "immediately increase your 401(k) savings by the 1 to 2 percent change there will be in the tax brackets now, so when the change hits in a month, you don't miss the money." Lower tax withholding is also an opportunity for plan sponsors to automatically raise salary deferral rates on behalf of plan participants, who would be able to opt out of the increase.
(Fiduciary News)

 

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