NEW YORK—Earlier this month, the Internal Revenue Service released Notice 1036, which contains updated income-tax withholding tables for 2018 that reflect changes made by the tax reform law enacted at the end of December. The IRS also posted a set of Withholding Tables Frequently Asked Questions.

Employers should begin using the 2018 withholding tables as soon as possible but not later than Feb. 15, 2018, the IRS said. As well, employers should work with their internal payroll departments and payroll vendors to ensure that their systems are appropriately adjusted in light of the IRS guidance. Employers should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.

The updated withholding information shows the new rates for employers to use during 2018 and reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and income brackets. For employees with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding, avoiding over- and under-withholding of tax as much as possible.

Ninety percent of wage earners will see increases in their paychecks under the new withholding rates, the Trump administration has said. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid: weekly, biweekly or monthly, the IRS noted.

The new withholding tables are designed to work with the current Form W-4, Employee's Withholding Allowance Certificate, which workers have already filed with their employers to claim withholding allowances. "Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4," the IRS said. This will minimize burden on taxpayers and employers, as "employees do not have to do anything at this time."

The IRS, however, is working on revising Form W-4 to reflect changes in the new law regarding available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions. The new Form W-4 is expected to be issued "soon," the IRS said.

To help employees determine their optimal withholding, the IRS is revising the withholding tax calculator on The IRS anticipates this calculator should be available by the end of February.

While employees are not required to take any extra steps, the revised calculator can help them to review their adjusted withholding to make sure that it reflects their needs, so they can alter their withholding if necessary. For instance:
  • Employees with itemized deductions may want to lower the amount being withheld.

  • Employees with taxable income from investments may choose to withhold more.
2018 Income Tax Rates and Brackets

The 2017 tax act changed the tax rates and income ranges to which the rates apply. The level of income that is subject to a higher tax bracket can influence a number of decisions made by employees, including how much salary to defer into a traditional 401(k) plan, which reduces taxable income for a given year by the amount contributed, or whether to participate in a nonqualified deferred income plan, if that option is available through the employer.

The charts below show 2018 versus 2017 tax rates and income brackets for single filers and married couples filing jointly. Additional income tax rates and brackets can be viewed here.

The 2017 tax act also made the following income tax adjustments for 2018:
  • The deduction for personal exemptions, which had been $4,050 for 2017, is suspended.

  • The standard deduction for single taxpayers and married taxpayers filing separately rises to $12,000 from $6,350.

  • The standard deduction for married taxpayers filing joint returns rises to $24,000 from $12,700.

  • The standard deduction for heads of household rises to $18,000 from $9,350.

On a going-forward basis, the IRS said it will work with the business and payroll community to encourage workers to file new Forms W-4 next year and to share information on changes in the new tax law that impact withholding.

Hedley Lawson, Contributing Editor
Managing Partner
Aligned Growth Partners, LLC
(707) 217-0979