03/31/2018
Withholding Tables,W-4 Forms, and Supplemental Wages
In January, the IRS released Notice 1036, which updates the income-tax withholding tables for 2018 to reflect changes made by the Act. The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets.
Employers were required to begin using the 2018 withholding tables by February 15, 2018. ADP implemented these changes in RUN Powered by ADP® on January 19, 2018, 6 a.m. ET (for payrolls processed on or after that date/time).
On February 28, 2018, the IRS released a new Form W-4 (Employee’s Withholding Allowance Certificate) for 2018. Employees use the Form W-4 to establish marital status and withholding allowances for federal income tax withholding calculations.
New hires who complete a W-4 on or after March 30, 2018 must use the 2018 W-4. In the meantime, the IRS is allowing new hires to use the 2017 W-4.
The IRS will not require all employees to file new Forms W-4. However, employees who have previously furnished a W-4 may be required to file a new one if they have a change in their tax status (e.g., divorce) that would reduce the allowances to which they are entitled. Even in the absence of a requirement to complete a new W-4, it is advisable that employees review their withholding for 2018. For example, the Act eliminated personal exemptions, so if any withholding allowances on file represent personal exemptions, an employee’s withholding allowances may be overstated for 2018, which could result in tax under-withholding. To some extent, the new withholding tables adjusted for this and other factors, however, as a best practice employees should check their withholding and some may want to file a new W-4 with their employer to help avoid possible over or under withholding from their paychecks.
According to the IRS, employees who previously itemized their deductions, have two or more jobs in their household, or have dependents, should check their withholdings.
Employees who need to submit a new W-4 must begin using the 2018 W-4 by March 30, 2018. Up until then, they may use the 2017 Form W-4.
The IRS also released an updated withholding calculator that employees can use to check their withholding. The calculator will ask a number of questions about income, marital status, anticipated deductions and eligibility for tax credits, to estimate annual taxable income and suggest the most appropriate number of withholding allowances.
Employers should notify employees of the 2018 Form W-4 and withholding calculator. Here’s a sample notice to employees.
State Forms W-4 May Also Change
Many states maintain tax laws that are closely aligned with federal law, and many states permit employers to rely on the federal Form W-4 for state income tax withholding purposes. The elimination of personal exemptions in federal law may cause several states to revise their equivalent withholding allowances forms and/or issue new guidance to employers.
Supplemental Wage Withholding Rate Clarified
Updated January 12, 2018: In Notice 1036, the IRS also clarified withholding on supplemental wages, such as bonuses, under the Act. When an employee receives $1 million or less in supplemental wages during 2018 and those wages are identified separately from regular wages, the flat withholding is 22 percent. When an employee receives in excess of $1 million in supplemental wages, the withholding on the excess is 37 percent, according to the IRS.
