The IRS released new payroll tax tables for employers to begin withholding taxes at the new rates changed by the 2018 Tax Cuts and Jobs Act. As a result, you can expect your net pay to change within the next month as employers and payroll companies begin implementing the new rates. The IRS is encouraging employers to begin withholding at the new rates as soon as possible, but not later than February 15, 2018. That means your paychecks could change, and you should be aware of the impact of these changes.
The new payroll tax withholding tables are designed to work with the Forms W-4 that you have already filed with your employer to claim withholding allowances. As a result, employees do not have to do anything at this time. However, the IRS is also working on revising the Form W-4. Form W-4 and a revised online calculator will reflect additional changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions.
The IRS is revising the withholding tax calculator on IRS.gov. IRS anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once the calculator is released.
The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job.
Employees should carefully review the new payroll tax withholding amounts when your employer changes them. Not everyone benefits with the new tax laws, but the new payroll tax tables will generally result in lower withholdings unless you change your exemptions. Because the new tax bill has eliminated the personal and dependent exemption deduction and changed the tax tables, you could find yourself in a situation where you are not withholding enough, and end up with a balance due with next year’s tax return. Alternatively, because the standard deduction has nearly doubled in 2018, you could find yourself withholding too much and getting a larger than expected refund. While a larger refund is always a nice surprise, you could change your withholdings and use that money a lot sooner by getting a higher net paycheck now, rather than waiting for 12 months and filing next year’s taxes.