Last week, the IRS released Notice 1036 which updates the income tax withholding tables for 2018 (see page 2 in Notice 1036 link). These updated tables reflect changes made by the new tax law and establish rates employers should use during the 2018 tax year. Yes, during. So, as soon as possible, and no later than February 15, 2018, employers need to begin using these updated tables. (Until you make the switch, use 2017 withholding tables).
Withholding tables are used by employers and payroll services to determine how much tax to withhold from employees’ paychecks given their wages, marital status, paycheck frequency, and the number of withholding allowances. The new tables reflect the changes set forth in the new tax law -- namely the increase in the standard deduction, the repeal of personal exemptions, and changes in tax rates and brackets.
The new withholding tables are designed to work with forms W-4 that employees already have on file with their employers. However, it is possible that, with the new tables, employees may need to change their forms W-4. We’ll alert you if that proves true.
The IRS is also revising the withholding tax calculator on IRS.gov. It should be available by the end of February.
If you are an employee, expect to see changes to your paychecks by the end of February (exact timing will depend on when your employer makes the switch to the updated tables detailed above). Also remember that, in addition to income tax, your pay is also subject to withholding for FICA taxes, which covers Social Security and Medicare. For now, the employee portion of the Social Security tax is 6.2% with a taxable wage base of $128,400 (wages over that amount are not subject to Social Security tax) while the employee portion of Medicare tax is 1.45% with no wage base limit (all wages are subject to Medicare tax). There is an additional Medicare surtax (.9%) tacked on to wages which exceed $200,000, or $250,000 for married taxpayers. See Thompson Reuters' rundown here.
The IRS has not yet released the official 2018 tax tables. Expect those at the end of January 2018.
Questions about getting your company in compliance with the new withholding tables? Comment below!