IRS Releases New Withholding Tax Tables for 2018

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The Internal Revenue Service released IRS Notice 1036 on Thursday January 11, 2018, which updates the income-tax withholding tables for 2018 reflecting changes made under the Tax Cuts and Jobs Act of 2017 which was enacted last month. This is the first in a series of steps that IRS will take to help improve the accuracy of withholding following major changes made by the new tax law.

This updated IRS information shows the new rates for employers to use during 2018. Employers should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.

Many employees will begin to see increases in their paychecks to reflect the new law in February. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid — generally weekly, biweekly or monthly.  

The new withholding tables are designed to work with the Forms W-4 that workers already have on file with their employers in regard to their withholding allowances. This should minimize burden on both taxpayers and employers, it also means that employees have nothing extra to to do at this time.

“The IRS appreciates the help from the payroll community working with us on these important changes,” said Acting IRS Commissioner David Kautter. “Payroll withholding can be complicated, and the needs of taxpayers vary based on their personal financial situation. In the weeks ahead, the IRS will be providing more information to help people understand and review these changes."

The new law makes multiple changes affecting individual taxpayers for 2018. The new withholding tax tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets.

For people with simpler tax situations, the new tables are designed to produce the correct amount of withholding tax in an attempt to avoid over- and/or under- withholding of tax.

To help people determine their withholding, the IRS is revising the withholding tax calculator on IRS.gov. The IRS anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once it is released.

The IRS is also working on revising Form W-4. Form W-4 and the revised calculator will reflect additional changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions.

The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job. Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4.

The IRS plans to provide taxpayer education about the new withholding guidelines and the calculator. Their efforts will be geared toward helping workers ensure that they are not having too much or too little withholding taken from their paychecks.

The IRS anticipates making further changes involving withholding for tax year 2019. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and share information on changes in the new tax law that impact withholding.

More information is available from the IRS Withholding Tables Frequently Asked Questions website.

For information purposes only, here is Table 1, 2, 3 and 4 for the Percentage Method for Income Tax Withholding on Wages Paid in 2018.

Solely for comparative information purposes, here is Table 1, 2, 3 and 4 for the Percentage Method for Income Tax Withholding on Wages Paid in 2017.

Content drawn and adapted from the official IRS.gov website.