IRS Releases New W-4 & Recommends "Paycheck Checkup"
On February 28, the IRS released a revised Form W-4 and a Withholding Calculator for 2018. These updates come as a result of the Tax Cuts and Jobs Act. Due to the dramatic changes to the law, Acting IRS Commissioner David Kautter stated, “the IRS encourages employees to check their paychecks to help ensure they’re having the right amount of tax withheld for their personal situation.”
Direct links are below. Please note that these updates take effect for the 2018 tax year and will not affect your 2017 taxes:
- New Form W-4: https://www.irs.gov/pub/irs-pdf/fw4.pdf
- Withholding Calculator: https://www.irs.gov/individuals/irs-withholding-calculator
Per Kautter, checking on withholding amounts for 2018 “can help taxpayers ensure they don’t have too little – or too much – withheld from their paycheck.” The IRS specifically identified the following groups of taxpayers who should be sure to check on their 2018 withholding:
- Two income families
- People with two or more jobs at the same time or who only work part of the year
- People who claim credits, such as the Child Tax Credit
- People who itemized deductions in 2017
- People with high incomes and more complex tax returns
If employees would like to make changes to their withholding amounts, they may do so by completing the new Form W-4 and submitting it to their employer. Because withholding occurs throughout the year with each paycheck, employees should make changes as soon as possible.
According to the IRS’s Notice 2018-14 Guidance on Withholding Rules (https://www.irs.gov/pub/irs-drop/n-18-14.pdf), employers may continue to use the 2017 Form W-2 for 30 days following the release of the 2018 Form W-4 (that is, through March 30, 2018) with some specific caveats:
- Modifying the 2017 Form W-4 by striking “2017” in the text on Line 7 of the Form W-4 and entering “2018” in its place and signing the form in 2018;
- Modifying the 2017 Form W-4 by entering “Exempt 2018” on Line 7 of the 2017 Form W-4 and signing the form in 2018;
- Using the 2017 Form W-4 without modification and signing the form in 2018, provided that the employer establishes and communicates to employees a procedure under which an employee signs and furnishes the 2017 Form W-4 in 2018 to certify both that the employee incurred no income tax liability for 2017 and that the employee anticipates that he or she will incur no income tax liability for 2018 and thus claims exemption from withholding for 2018;
- Any method substantially similar to (1)–(3) that clearly conveys in writing an employee’s intent to certify his or her exemption from withholding for 2018.
Otherwise, employers should use the 2018 Form W-4 for all new employees going forward.
The complete news release is available on the IRS website: https://www.irs.gov/newsroom/updated-withholding-calculator-form-w-4-released-calculator-helps-taxpayers-review-withholding-following-new-tax-law