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IRS Releases Tax Withholding Tables for 2018

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The Internal Revenue Service released Thursday the updated 2018 withholding tables reflecting enactment of the new tax law, the Tax Cuts and Jobs Act.

House Ways and Means Chairman Kevin Brady, R-Texas, and Treasury Secretary Steve Mnuchin stated that nine out of 10 taxpayers will see a boost in their take-home pay within the coming weeks.

“That comes on top of all the bonuses, wage increases and expanded benefits that so many businesses have already provided American workers as a result of tax reform,” Brady said.

Mnuchin encouraged employers to implement the new income tax withholding tables “expeditiously,” doing so no later than Feb. 15.

Workers, he said, will see changes in their February paychecks once employers adopt the new guidance.

“With this guidance, most American workers will begin to see bigger paychecks. We estimate that 90% of wage earners will experience an increase in their take-home pay,” Mnuchin said.

The withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers, Treasury states, which “will minimize burden on taxpayers and employers.”

The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets under the new tax law.

For people with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding, the IRS said. “The revisions are also aimed at avoiding over- and under-withholding of tax as much as possible.”

IRS Updating Withholding Tax Calculator

The IRS is also revising the withholding tax calculator on to help individuals determine their withholdings. The updated calulator should be up by the end of February,

Taxpayers, the IRS said, “are encouraged to use the calculator to adjust their withholding once it is released.”

Also in the works is revising the Form W-4. “Form W-4 and the revised calculator will reflect additional changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions,” the IRS said. 

“The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job,” according to the IRS.

Until a new Form W-4 is issued, IRS counseled employees and employers to continue to use the 2017 Form W-4.

For Social Security, the tax rate is 6.2% each for the employee and employer, unchanged from 2017. The Social Security wage base limit is $128,400. The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2017.

But Democrats argue that new tables could actually enforce “underwithholding,” resulting in Americans getting hit with “whopping” tax bills next year.

“Republicans are using brute force and speed to implement a law that will deliver a financial blow to hardworking Americans all across the country,” said Senate Finance Committee Ranking Member Ron Wyden, D-Ore. 

Both Wyden and House Ways and Means Ranking Member Rep. Richard Neal, D-Mass., recently raised concerns with the IRS in a letter that the Trump administration could be politically interfering with the development of the 2018 withholding tables.

Wyden and Neal argued that the Trump administration would be under “substantial pressure” to make good on the president’s promise that the tax law will provide American households with a $4,000 tax cut.

The democratic lawmakers’ fear is that withholding tables will take insufficient amounts out of taxpayers’ checks in 2018, “fostering an appearance of a larger tax cut in 2018” but leaving them an expensive surprise when filing season comes.

Wyden and Neal said they’ll await the Government Accountability Office’s review of the tables, which they requested, to “expose whether the Trump administration is tampering with Americans’ paychecks.”

For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and share information on changes in the new tax law that impact withholding.

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