New Information on Withholding

The Internal Revenue Service has issued a notice providing guidance for employees and employers on what to do with the Form W-4 under the new Tax Cuts and Jobs Act. Notice 2018-14 extends the effective period of Forms W-4 furnished to claim exemption from income tax withholding for 2017 until Feb. 28, 2018 and temporarily allows employees to claim exemption from withholding for 2018 by using the 2017 Form W-4.

This new IRS notice also suspends a requirement that employees must give their employers new W-4 forms within 10 days of a change of status resulting in fewer withholding allowances.

The new guidance also specifies that the optional withholding rate on supplemental wage payments (bonuses) is 22% for the taxable years 2018 through 2025 from 25% previously.

For the tax year 2018, withholding on annuities or similar periodic payments where no withholding certificate is in effect is based on treating the payee as a married individual who is claiming three withholding allowances.

There are many questions that have come about following the passing of the Tax Cuts and Jobs Act, and the IRS is creating forms and documents to assist in understanding how these changes impact employers and employees. Here you can view the updated IRS withholding tables in Notice 1036.

Release of 2018 Publication 15

The IRS released the 2018 version of Publication 15, (Circular E), Employer’s Tax Guide. This guide has been updated to reflect a number of important changes made by the Tax Cuts and Jobs Act.

The IRS Publication 15 provides guidance on the requirements for withholding, depositing, reporting, paying, and correcting employment taxes. This publication also outlines information on the forms that employers must give to employees and that employees must give to employers, in addition to the forms that must be sent to IRS and the Social Security Administration (SSA).

Publication 15 incurred some changes as a result of the recent Tax Cuts and Jobs Act, as well as changes outside of this Act, and those are briefly discussed here:

  • Withholding tables. The 2018 wage bracket withholding tables and the previously-released percentage method withholding tables are included in Publication 15. The 2018 withholding tax tables incorporate changes to the individual tax rates made by the TCJA. Employers should implement the 2018 withholding tables as soon as possible, but no later than Feb. 15, 2018. The 2017 withholding tables should continue to be used until the 2018 withholding tables are implemented.
  • Form W-4 exemption. As noted above.
  • Increased withholding allowance. The value of an annual withholding allowance has increased from $4,050 to $4,150.
  • Lower supplemental wage withholding rate. As noted above.
  • Lower backup withholding rate. The TCJA lowered the backup withholding rate to 24%.
  • Moving expense reimbursement exclusion generally suspended. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, exclusion for qualified moving expense reimbursements is suspended, except in the case of a member of the U.S. Armed Forces on active duty who moves because of a permanent change of station.
  • Social security wage base. The social security wage base limit for 2018 is $128,400.
  • Disaster tax relief. The 2018 version of Publication 15 reminds employers that disaster tax relief was enacted for those impacted by Hurricane Harvey, Irma, or Maria, and that IRS has provided special relief designed to support employer leave-based donation programs to aid the victims of these hurricanes and to aid the victims of the California wildfires that began Oct. 8, 2017.

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