With passage of the Tax Cuts and Jobs Act, the IRS has now assumed the important task of implementing tax reform. On January 11, the agency began this process by releasing the new 2018 federal income tax withholding tables. Though taxpayers must begin using the new tables no later than February 15, 2018, the IRS strongly encourages employers to update their withholding compliance procedures as soon as possible.
In an effort to lessen the burden of compliance, the IRS formulated the 2018 withholding tables to correspond with the current version of Form W-4; though a revision to the Form is expected at a later date. Additionally, the IRS ensures employers and employees that they may continue to use withholding allowances already claimed on previously filed Form W-4s.
The 2018 withholding tables incorporate the most significant individual income tax changes under the Tax Cuts and Jobs Act, including the repeal of the personal exemption, the increase to the standard deduction, the new marginal tax rates and changes in tax brackets. The IRS notes that individuals may find their withholding thresholds have decreased as a result of these changes, thereby increasing their after-tax income. Treasury Secretary Steve Mnuchin, speaking to the White House press pool, estimated that 90% of employees will see their take home pay increase under the new withholding guidelines.
In order to better illustrate the real world impact of the new withholding tables, the IRS intends to revamp the withholding tax calculator already available on their website. The new calculator will also allow taxpayers to see how their after tax income will be affected by other tax reform changes such as the revisions to itemized deductions, the increase in the child tax credit, and the new dependent credit. The agency hopes to have the updated calculator ready by the end of February.
The new 2018 individual income tax withholding tables are just the first step on the road to fulfilling the objectives of tax reform. Schneider Downs is committed to keeping our clients and the general public up-to-date on new developments in the reform process. For more information on the 2018 withholding tables, please click here. We also invite you to visit our Tax Reform Blog, or contact our offices personally if you have any questions.