In mid-January we released a blog asking if the new tax tables mean more money for people's paychecks. In that post, we reported that The Tax Cuts and Jobs Act, which was passed by the federal government in December, resulted in changes including increased standard deductions, removal of personal exemptions, increased child tax credit, and revisions to tax rates and income brackets effective for 2018. We also let you know that the IRS was working on updating the income tax withholding calculator and the Form W-4.
Effective March 1, 2018, the IRS release updated versions of both the Withholding Calculator and Form W-4. When using the tax calculator, you will want to have a copy of your most recent pay stub available and, ideally, additional information to help answer questions relating to:
- Filing Status
- General Information, including: Retirement Plans, Cafeteria Plans, Number of Dependents
- Dependent Care Credit / Earned Income Tax Credit / Other Credits
- Income and Withholding
- Non-wage Income
- Adjustments
- Deductions
The Withholding Calculator is designed to help people make sure they are not having too much or too little taken out of their paychecks to cover taxes.
If people determine, after going through the Withholding Calculator exercise, that changes should be made to their deductions, the new Form W-4 can be completed and submitted to the employer’s HR/Payroll department. It is not required that all existing employees complete the new Form W-4. Employers should begin using the new Form W-4 for all new hires and/or re-hires as soon as possible.
The IRS has also issued a very informative and extensive list of Withholding Calculator Frequently Asked Questions to provide support and help people navigate through the process and changes. Make sure your employees and friends are not surprised with a large tax bill when filing 2018 taxes (the new withholding rates will not affect the 2017 taxes filed in early 2018) by sharing these resources and encouraging people to utilize them.