With the passage of the new tax legislation last month, the IRS must take several steps to update withholding accuracy in accordance with the new laws. Their first major step consisted of updating the withholding tables for employers to follow, and those updates were posted on the IRS website January 11.

The IRS would like employers to begin using the new rates listed on the new tables as soon as possible and to continue using the 2017 tables until they have done so. However, employers must implement the new tables by February 15, 2018, at the latest. As soon as employers make those updates, employees will begin to see their paychecks reflect those changes, which could result in an increase in net pay for many taxpayers. The new tables are also designed to function with the current W-4 withholding forms, which should allow for a simpler transition for both employees and employers.

The new withholding tables are intended to reflect changes in rates and brackets, the repeal of some personal exemptions and the increase in the standard deduction enacted by the new tax laws. Additionally, the tables are meant to generate the correct withholding amounts for those with simple tax situations, as well as avoiding under or over-withholding taxes when possible.

Other items the IRS plans to update or revise include the withholding calculator on their website and the Form W-4. Many taxpayers use the IRS calculator to determine their own withholding, and the IRS expects the new calculator to be ready for public release by the end of February. Although the new Form W-4 may take a bit more time to revise, it should reflect changes in itemized deductions and increases or repeals of some credits. Employers are encouraged to continue using the 2017 Form W-4 until the new form is released.

For those beginning new jobs in 2018, for workers who have had personal life changes or for those who would simply like to update their withholding in light of the new laws, the revised calculator and Form W-4 can be used to make any withholding updates once they are released. Although the IRS is planning to educate taxpayers about the new withholding standards, workers are encouraged to find out more information regarding the changes on the IRS Withholding FAQ page.

Daniel Kittell, CPA