The IRS recently released an updated withholding calculator and a new version of Form W-4. These items will help taxpayers check their 2018 withholding in lieu of the recently enacted tax reform legislation.
This matters to business owners, as these tools help ensure employees have the correct amount of tax withheld from their paychecks.
What is Form W-4?
Form W-4 is used by you (the employer) to ensure the correct amount of federal income tax is coming out of your employee’s paycheck. The form is filled out by your employees. Your employees need to fill out this form if they are new hires. They also need to fill out the form annually if they claim complete exemption from all federal income tax withholding.
While it’s not required, your employees can also submit a new Form W-4 at any time, especially if their personal or financial situation changes. Cue tax reform.
The newly enacted tax reform legislation has made some pretty significant changes related to employee withholding, including increasing the standard deduction, removing personal exemptions, raising the child tax credit and more. To learn more about the implications of this bill on individuals, check out this article.
Tell me more.
This process began when the IRS released new withholding tables in January (see more about that here). These tables help you, as the employer, or your payroll provider, determine the amount of tax needed to be withheld from your employee’s paycheck.
Consider the withholding calculator and Form W-4 the next step in the process. The IRS is encouraging taxpayers to use these tools to ensure the right amount of tax is being taken out of their paychecks.
While the IRS is encouraging everyone to check their withholding, here are a few groups that are especially encouraged to take a look:
The withholding calculator gives employees the information needed to complete a new Form W-4. Once your employees fill out this form, they need to submit it to you. As their employer, you will then need to take steps to ensure the correct amount of tax is being withheld.
Anything else I need to know?
These changes to withholding don’t affect 2017 tax returns. They are to be used to help prevent issues on 2018 tax returns.