Freed Maxick Tax Team
Employees should still review withholding to make sure they are not surprised by a significant balance due at tax time.
The IRS has issued updated payroll withholding tables designed to reflect changes made to the law by the Tax Cuts and Jobs Act (TCJA) in December 2017. Employers should begin using the new tables as soon as possible, but no later than February 15, 2018. The new withholding schedules will likely increase take-home pay for many employees, but taxpayers should take steps to verify that they will not be significantly underwithheld at year-end.
The new federal withholding tables are designed to work with the existing Form W-4 withholding allowance certificate that employees file when they start a new job or adjust their withholding. However, that form relies on a calculation based on the number of “personal allowances” the employee claims. While those allowances did not correspond exactly to the number of “personal exemptions” the employee could claim on an income tax return, there was some correlation between the two. The TCJA eliminated personal exemptions in favor of a larger standard deduction. This created a potential disconnect between the tax law and the withholding calculation that could result in a significant difference between amounts withheld and income taxes owed at the end of the year.
The IRS does offer a withholding calculator on its website to help employees understand how much money should be withheld from each paycheck. At this time, the calculator is being revised to accurately reflect the new law. The Service “anticipates that this calculator should be available by the end of February.” Employees should be encouraged to double-check their withholding once the new calculator is available. A new Form W-4 is also in the works, and the IRS states that it will “work with the business and payroll community to encourage workers to file new Forms W-4 next year…”
Until then, taxpayers may want to be more active in managing their withholding amounts than they have in the past.
For more information about federal tax payroll withholding and other changes resulting from the TCJA, please contact Freed Maxick.
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Freed Maxick CPAs, P.C. is Western and Upstate New York’s largest public accounting firm and a Top 100 firm in the United States. Freed Maxick’s reputation and experience with business and tax issues has made us a go-to firm for businesses and individuals from all over the U.S. and Canada and around the world.