The US Treasury Department has released new withholding tables based on the recently passed tax-reform bill. These tables inform the employers on how much needs to be withheld from their employees’ paychecks.
Around 90% of workers are expected to see a decrease in withholding under the new guidelines, which will result in higher more take-home pay.
IRS Withholding Tables Help Employers Assess Withholding Requirements
The withholding tables are released annually by U.S. Treasury Department and provides a framework for employers on the amount to be withheld from their employees’ paychecks to cover federal income taxes.
The withholding tables consider different factors such as income, tax-filing status, paycheck frequency, and the allowances claimed along with current tax brackets to fix the necessary amount of money to be withheld .
Withholding Tables To Come Into Effect Mandatorily In February
The new withholding tables can be put into use immediately, so some employees may see a take-home increase in their next paycheck. However employers aren’t required by law to follow the new withholding tables until February 15. So some employers may choose to wait to apply the new guidelines.
Impact Of New Rules
The impact of tax changes will differ from individual to individual.
An employee can estimate the change under the new rules, by deducting the number of allowances claimed multiplied by the appropriate payroll-frequency factor provided in the new withholding tables from the gross income. This number is the amount of wages to be used for determining the new withholding amount.
The per-paycheck withholding amount can be now calculated by using the calculated wages amount in the table against the filing status and payroll frequency . By reducing this result from the current per-paycheck withholding, the increase in paychecks can be estimated.
W-4 Form Being Redesigned
Along with new taxes, a new W-4 form is also being designed as per the IRS. The new form is expected to be more accurate in reflecting changes in the tax law which impact employees’ withholdings, like the increased child tax credit or changes to itemized deductions.
Further changes in IRS’ forms and procedures are likely to be introduced in 2019.
