IRS Issues New Withholding Tables for 2018

The IRS has issued Notice 1036, which provides early release copies of the 2018 withholding tables.  The notice instructs employers to begin using the 2018 withholding tables as soon as possible, but not later than February 15, 2018.  Until making the change over to the new 2018 withholding tables, employers should continue to use the 2017 withholding tables.

In the new tables, the amount assigned to each withholding allowance claimed by an employee on Form W-4, Employee’s Withholding Allowance Certificate, has increased slightly.  In addition, the percentage of income to be withheld from the compensation of employees has been decreased.  As a result, unless Form W-4 is changed, employees will have less tax withheld from each payroll check than under the 2017 tables.

The IRS has indicated that it will issue an updated version of Form W-4 for the 2018 tax years.  Until it does, employees should continue to use the 2017 version of Form W-4.

When preparing tax returns for the 2017 tax year, practitioners should compare a client’s expected federal income tax liability for 2018 (using the new 2018 tax rates and rules created by the new tax law that was enacted on December 22, 2017) to the expected amount of 2018 withholding that will result from the new 2018 withholding tables.  It may be necessary to adjust a client’s 2018 withholding and/or estimated tax payments, as a result of these changes.

IRS Notice 1036 is available from the IRS website, using this link.