After much anticipation following the passage of the Tax Cuts and Jobs Act, the IRS has finally released a new version of Forms W-4 as well as a new withholding calculator.

Note that the withholding changes do not affect 2017 tax returns. Here’s what you need to know about the new IRS updates. This is great information to share with your employees, but also great reminders for you as a taxpayer as well.

What is a Form W-4?

Your employees are required to complete a Form W-4 so that you (the employer) can withhold the correct federal income tax from their pay. It’s a good idea to complete a new one each year, especially when financial or personal situations change.

Where can you find the new Form W-4? We’ve got it in our resources section! Click here to see the form.

Who should check their withholding?

In short, it’s a good idea for all of your employees (and you) to check that your withholding is correct.

However, according to the IRS, employees with more complicated financial situations are more likely to have to revise their Form W-4. Here are some situations the IRS notes:

  • Families that have more than one earner.
  • People with two plus jobs at the same time or who only work for part of the year.
  • People with children who claim credits (ex. the Child Tax Credit).
  • People with older dependents, including kids age 17 or older.
  • People who itemized deductions in 2017.
  • People with higher incomes and more complex tax returns.

Why is it important to use a withholding calculator?

The new tax law brought a host of changes impacting you and your employees’ paychecks. The updates include:

  • Increasing the standard deduction.
  • Removing personal exemptions.
  • Increasing the child tax credit.
  • Limiting or discontinuing certain deductions and changing the tax rates and brackets.

Because of these changes, the IRS recommends that your employees check their withholding to make sure that they’re having the right amount of tax withheld from their pay.

Another factor that comes into play is if an employee experiences a life change that could affect the number of withholding allowances (ex. a divorce).

Withholding takes place throughout the year, so the earlier you check your calculations, the better, so you can make any changes necessary.

Tips for using the new withholding calculator.

A little preparation goes a long way when getting the most accurate result from the new withholding calculator. You should anticipate having to estimate your 2018 income and other items that might affect your taxes.

Have your employees gather this information:                               

  • Most recent pay stub – Check to ensure it reflects the amount of federal income tax withheld so far in 2018.
  • Completed copy of 2017 tax return – Information on this form can help estimate income and other items for the year ahead.

Remember, the accuracy of your results from the calculator is reflective of the accuracy of information you input.

Find the calculator by clicking here.

General tips for filling out a Form W-4.

The fewer withholding allowances you enter on your Form W-4 (or into the calculator), the higher your tax withholding will be. If you fill out a zero or one on line five of the W-4, this means that more tax will be withheld. If you enter a larger number, there will be less withholding, resulting in a smaller refund come tax time (or even potentially a bill or penalty).

You can read the IRS’ full list of tips here.

Will there be more changes?

We can expect more updates to come in 2019, according to the IRS. Our PrimePay team is closely following all news that is released. As soon as more information becomes available, we will be sure to let you know.

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Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.