President Trump signed the Tax Cuts and Jobs Act into law on December 22, 2017. Under the new law, the individual tax rate will be reduced to a maximum of 37%, which is down from 39.6% prior to the new bill being passed. The bill kept a seven-bracket tax structure, but the ranges have been adjusted to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These brackets are currently set to expire in 2025.
Employees will be able to see the effects of this bill by no later than the end of February, 2018, though employees may not feel a significant difference. After all, the taxes adjusted are only reduced by 1% to 3%, which isn’t going to cause a perceptible difference in most cases. Employers are required to implement the new tax tables for employees as soon as possible; no later than February 15, 2018. The 2017 tax tables will be used until employers make the change to the new tables. The IRS has released the updated income-tax withholding tables for 2018 in Notice 1036.
Employees will not be required to take any immediate action. The new tax tables are designed to work with the existing Form W-4s that employees have already filed. However, the IRS is working to revise the current form. An expected date for the new form has not yet been released. The IRS is also currently updating the withholding tax calculator on IRS.gov, and that is expected to be available by the end of February. Adjustments to the form and calculator will reflect additional changes included in the law, such as:
- increases in the child tax credit
- the new dependent credit
- repeal of dependent exemptions
- changes in available itemized deductions
There will be a lot of uncertainty around taxes until people file their 2018 returns. For additional guidance, the IRS has issued a Withholding Tables Frequently Asked Questions on their website.