The IRS has issued a highly anticipated revision to the Form W-4, Employee’s Withholding Allowance Certificate. The new form reflects changes required by the Tax Cuts and Job Act of 2017 signed by President Trump last December. The changes to the form are primarily reflected in the personal allowances worksheet (on page 3 of Form W-4) used by employees to determine the number of allowances an employee should claim from withholding.
Below is an illustration of the changes between the 2017 form and updated 2018 revision.
The major changes to the worksheet reflect required updates to income thresholds for the Child Tax Credit as well as additional steps to determine how to adjust dependent exemptions based on projected annual income.
The IRS plans to release a new version of Form W-4 for 2019 that will contain further changes involving withholding.
WITHHOLDING CALCULATOR FOR TAXPAYERS
The IRS has also issued an updated Withholding Calculator employees may use to determine if adjustments are needed to their Form W-4. The Withholding Calculator is located here:
The IRS encourages all employees to use the Withholding Calculator to perform a “paycheck checkup”. As with any major changes to tax law, the IRS encourages employees to check their paychecks and review their Form W-4 to determine if any changes are necessary due to the Tax Cuts and Job Act of 2017.
“Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation,” Acting IRS Commissioner David Kautter said. “Taking a few minutes can help taxpayers ensure they don’t have too little – or too much – withheld from their paycheck.”
The IRS recommends the following groups check their withholding:
• Two-income families
• People with two or more jobs at the same time or who only work for part of the year
• People with children who claim credits such as the Child Tax Credit
• People who itemized deductions in 2017
• People with high incomes and more complex tax returns
In addition to these tools, the IRS has issued a list of Frequently Asked Questions for employers and employees who may have questions about the new Form W-4 and accompanying Withholding Calculator. We have incorporated these Frequently Asked Questions into a FAQ document which will be available in tandem with this alert.
The new 2018 Form W-4 will be available within Web Pay in the coming weeks; should you require a copy of the form earlier, a PDF version of the form is available here: https://www.irs.gov/pub/irs-pdf/fForm W-4.pdf.
Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.