2018 Change in Tax Withholding Tables

Most Americans realized that a tax act was passed in 2017 that impacted the 2018 tax year (i.e. tax returns that will be filed in 2019). Note, your 2017 tax return will not be affected. On January 11, 2018, the IRS issued Notice 1036 which updated income tax withholding tables.

Did Your Paycheck Change in February 2018?

The new update will reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets. These changes allowed employers to use the W-4 forms already on file to adjust withholding to reflect the recent changes in federal tax law. Some taxpayers could have seen an adjustment in their paychecks as early as February 2018.

Under-Withholding

However, not all taxpayers could see a refund as a result of the change in their paychecks. In fact, the following individuals could have an under-withholding problem:

• If you have large itemized deductions. Many itemized deductions were repealed or eliminated. Such as state and local taxes, mortgage interest, or miscellaneous itemized deductions;
• Employees who have commission income, bonuses, and stock options;
• Taxpayers who formerly had multiple dependent exemptions. Note: the dependency exemptions have been eliminated for 2018 returns;
• Taxpayers who have not updated their W-4 allowances; and
• Taxpayers who are divorced and trade dependency exemptions.

The New Withholding Calculator

In short, the changes to your paycheck may not actually reflect what you owe for 2018, or the refund that you will receive. Taxpayers really need to review their withholding now. In fact, unlike the 1986 tax act, Congress hasn’t mandated that all employees file new W-4 forms. Further, while the withholding tables were changed, the tax underpayment penalty provisions will remain the same. The IRS is currently working on a new withholding calculator and revised W-4 form that should be available in February 2018.

Contact a Tax Lawyer for Help

As always, you should seek help from a tax professional to determine if your unique situation warrants changes to your federal tax withholding. Your tax professional will also be able to determine if your withholding is accurate or if quarterly estimated tax payments are warranted and better advise you on how to take advantage of the recent changes in tax laws. The simple rule of thumb is to err on the side of the IRS – it’s better to get a refund than owe tax at a later date.

For questions please contact one of our tax lawyers at The Wright Firm, LLP (972) 353-4600, or visit us at our website. E-mail may also be addressed to our tax partner Attorney Paul F. Wright. Paul F Wright is also a Board Certified Texas Estate Planning and Probate Attorney and CPA.