Reacting quickly to the new tax law, the IRS released updated withholding tables for employers to adjust payroll for rates now in effect for 2018. Notice 1036 will be incorporated into Publication 15 published later in January, but the withholding tables have been released in advance so that employers may begin to incorporate them into their systems. The IRS has stated that employers should implement the new tables as soon as possible but no later than Feb. 15, 2018.
The new tables are intended to incorporate changes in tax rates, brackets, standard deduction amounts, and personal exemptions. Employees do not need to submit anything additional to incorporate the payroll changes. Employers can use the new withholding tables with existing Forms W-4 already on file.
The IRS anticipates updating the withholding calculator on its website as well as Form W-4 in the future. Employers should also note the changes to rates for supplemental wages, which are also included in the Notice; the new flat rates are now 22 percent or 37 percent, as applicable.
For many employees the new withholding tables will produce adequate withholding. However, those employees with more complicated tax situations the new tables might cause the taxpayer to be substantially under or over withheld at the end of the year. Therefore, such persons should consider reviewing their personal tax situation using the IRS withholding calculator once the IRS completes the update.
For more information on the withholding changes, see the frequently asked questions also posted to the IRS website. For our earlier article on payroll-related impacts of the new law, see our Payroll reactions to the Tax Cuts and Jobs Act alert.
