Employers Have Less Than A Month To Comply With New Federal Income Tax Withholding Tables
Employers have until February 15, 2018, to begin using the 2018 withholding tables
Earlier this month, the Internal Revenue Service (IRS) released Notice 1036, which updates the federal income tax withholding tables for 2018 to reflect changes made by the tax reform legislation enacted at the end of 2017.
How will this change affect employers?
The updated withholding information shows the new rates for employers to use during 2018. Employers have been asked to use the new rates as soon as possible, and are required to do so by February 15, 2018. Until they have implemented the 2018 withholding tables, employers should continue using the 2017 withholding tables.
NOTE: As part of its comprehensive HR, benefits and payroll services, G&A Partners has already taken care of updating our systems so that our clients' payrolls reflect the new federal withholding tables.
In a news release announcing the changes to the withholding tables, the IRS also indicated that employers should continue using the 2017 Form W-4 until a new form is issued (no date was given for when the new form will be made available.)
Additional information about other tax changes being implemented as a result of the tax reform legislation can be found on the IRS' tax law changes resources hub.
How will this change affect employees?
The new tax law makes a number of changes for 2018 that will, collectively, reduce the taxes paid by many individuals, including an increase in the standard deduction and changes in tax rates and brackets. As a result, many of your employees will begin to see increases in their net pay on their next paycheck.
While these changes don't require any action on the behalf of most employees, some individuals could find themselves in a situation of over- or under-withholding due to the changes in the new withholding tables. To help taxpayers determine whether or not they want to adjust their withholdings, the IRS is updating the withholding calculator available on its website. The updated calculator is expected to be available at the end of February. Employees wishing to adjust their withholdings can do so when the 2018 Form W-4 becomes available.
In addition, Notice 1036 also included changes that impact the supplemental wage tax rate. Supplemental wages are wage payments to an employee that aren't regular wages, such as bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay and retroactive pay increases.
- For employees receiving $1 million or less in supplemental wages during the calendar year, and such wages are either paid separately from regular wages or identified separately from regular wages, the federal supplemental tax rate was decreased to 22% for 2018 (compared to 25% in 2017).
- For employees receiving in excess of $1 million in supplemental wages during the calendar year, and such wages are either paid separately from regular wages or identified separately from regular wages, the federal supplemental tax rate was decreased to 37% for 2018 (compared to 39.6% in 2017).
This article is not intended to be exhaustive nor should any discussion or opinions be construed as tax advice. Readers should consult their tax accountant or a certified tax professional for tax advice.