IRS Updates the Tax Withholding Tables

Congress recently changed the tax rates and brackets for 2018 and beyond, when it passed the Tax Cuts and Jobs Act (the “Act”). The rate changes, however, were not as radical as some had initially proposed. Instead, the major changes affecting many taxpayers stem from other provisions of the Act, such as nearly doubling the standard deduction to $12,000 for single filers, $18,000 for head-of-household filers and $24,000 for married couples who file jointly. In any case, the Act was the most sweeping rewrite of the tax code since 1986.

The full impact of the Act will not be felt until next spring, when you file your 2018 tax return. Most Americans will enjoy a tax cut, at least for the next eight years (the provisions of the Act expire after 2025), but the benefits of the law will depend on a lot of factors, ranging from the size of your family and how much you earn to where you live.

The new law reduces taxes for millions of taxpayers by lowering income tax rates across the board. For example, if your top 2017 tax rate was 25%, it falls to 22% in 2018, and a chunk of your income that used to be taxed at 15% will now be taxed at a new 12% rate. As a result of the lower tax rates, the IRS has updated the income tax withholding tables for 2018 reflecting the changes made by the tax reform legislation.

The updated withholding information, announced last January in IRS Notice 1036, shows the new rates for employers to use during 2018. Employers should be using the 2018 withholding tables by now, and most employees probably have already seen increases in their paychecks. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This eliminates any burden on taxpayers and employers, as employees do not have to do anything at this time. The new tables reflect the increase in the standard deduction, repeal of personal exemptions, changes in available itemized deductions, increases in the child tax credit, and changes in tax rates and brackets.

The revisions are also aimed at avoiding over-and under-withholding of tax as much as possible. To help people determine their proper withholding, the IRS revised the withholding calculator on as well. Taxpayers are encouraged to use the calculator to adjust their withholding in response to the new law or changes in their personal circumstances in 2018.

For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and to share information on changes in the new tax law that impact withholding.

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