Here's what finance leaders need to know about the new IRS withholding tables, including how to communicate these changes to employees.
Signed into law on December 22, 2017, the Tax Cuts and Jobs Act implemented new tax brackets along with new income ranges. While this new legislation directly impacts workers' take-home pay beginning as early as last month, it also impacts IRS withholding tables. Employees will want to re-examine their Form W-4 withholding allowances so that they don't end up either owing Uncle Sam a large chunk of money at the end of the year or setting themselves up for an extra-large tax refund.
While employees are planning withholding adjustments, here's what finance leaders need to know about the new IRS withholding tables.
The New Withholding Rules and Guidance
In January 2018, the IRS issued Notice 1036, updating the withholding tables in alignment with the December tax reform legislation. This notice requires employers to begin using these tables as soon as possible and no later than February 15, 2018. Until that date, employers could use the 2017 tables, according to the IRS. These tables work with previous W-4 forms that employees filed with their employers, minimizing any administrative burden. Also in January 2018, the IRS issued Notice 2018-14, providing additional guidance on the new withholding rules.
How to Communicate the New Rules to Employees
While finance leaders will want to communicate the withholding changes to their employees, they should craft this communication carefully. For example, employers will want to pass along the rules on withholding as they continue to become finalized so that employees understand how the rules will impact them — but employers should not give tax advice.
With the release of the new online W-4 Calculator and revised Form W-4, the IRS is promoting the concept of a "paycheck checkup," to suggest that employees should use the online withholding calculator. Employers should consider sending a notice to employees of the 2018 Form W-4 and withholding calculator to prompt them to review their individual tax situations to determine whether they should change their withholding elections.
More changes are coming in 2019, according to the IRS, so employers may want to encourage employees to review their W-4s annually. In the face of confusing legislation, any reasonable guidance employers can give to their employees will be appreciated.
Stay up-to-date on the latest human capital management insights for finance leaders: subscribe to our monthly e-newsletter.
SIGN UP FOR THE BOOST NEWSLETTER