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What Businesses Need to Know About the 2018 Withholding Tables From the IRS

By MarksNelson on January 18, 2018 in Articles, Entrepreneurial Services, Nicole Eshnaur CPA MBA, CGMA
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The new tax withholding tables are out from the IRS and reflect changes from the Tax Cuts and Jobs Act. Employers need to make sure the calculations are implemented no later than February 15th. So how does this impact your business and payroll?

For employers using a payroll service, the changes should happen automatically. One of the nation’s largest payroll providers, Paychex, already updated its systems to reflect the new 2018 withholding rates. However, checking with your provider to make sure it will meet the February 15th deadline is a best practice.

For employers who are using an in-house software to process payroll, you will need to download the appropriate updates provided in the upcoming weeks. The IRS stressed it is vital you continue to use the old 2017 withholding tables while you are waiting for those software updates. Once the changes are made, be sure to notify employees of the change before the first paycheck is issued.

Click here for a closer look at the new withholding tables

The 2018 withholding rates reflect the following changes:

  • Increase in standard deduction
  • Repeal of personal exemptions
  • New tax brackets
  • Withholding rate on supplemental wages for $1 million or less – 22%
  • Withholding rate on supplemental wages over $1 million – 37%
  • Decrease in backup withholding rate – 24% (previously 28%)

Along with the new withholding tables, the IRS is expected to release a new Form W-4. However, until the new form comes out, employees who wish to adjust their withholding need to use the old form. The IRS is also revising its withholding calculator to help employees complete the W-4.

UPDATE: Click here for the 2018 Form W-4

Please note the IRS plans on making further changes to the withholding tables next year, so be alert to continual updates and information over the next 12 months. For questions on how the 2018 withholding tables impact your payroll, contact your MarksNelson professional at 816-743-7700.

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Nicole Eshnaur

Practice Leader-Accounting Services