In case you missed it, the Internal Revenue Service published the new 2018 W-4 form in March. As you know, accurate withholding is meant to get individuals close to their true tax liability at the end of the year. However, the new tax code, passed into law in December, made significant changes to calculations for income tax liability. Employers and employees alike need to reexamine withholding needs to ensure precision. The IRS intended that tax withholding under the new law should work with the 2017 W-4 form. This required revisions to retain components such as personal exemptions, which are no longer in the tax code. The 2018 W-4 retains the personal exemption because those still using the previous year’s for need to have it. Here are the highlights from the changes:
Exemption from withholding
The IRS changed instructions for claiming exemptions form withholding. Now you must indicate that for both 2017 and current year 2018 you had or expect no tax liability.
The IRS releases its withholding calculator. the W-4 instructions state that if you use the withholding calculator, you don’t need to complete any of the worksheets for Form W-4. This was not stated on the previous W-4. It may indicate that the withholding calculator is the most reliable method to get your withholding closest to your tax liability.
Calculating personal allowances
The 2018 W-4:
- Removed the reference to dependents whom you can claim on your tax return.
- Changed the calculation for the child tax credit to reflect the new amount and the significant increase in the phase-out amounts.
- Added the credit for non-child dependents to factor into allowances.
Changes to Deduction, Adjustments and Additional Income Worksheet
The IRS changed:
- The estimate of itemized deductions to reflect the new tax law referencing the $10,000 cap on state and local taxes (including property and income taxes) and the change to medical expenses in excess of 7.5 percent.
- The wage thresholds and amounts for the Two-Earners/Multiple Jobs Worksheet to reflect the dynamic of the new tax code on these taxpayers.