The Internal Revenue Service (IRS) has released a new Form W-4 (Employee's Withholding Allowance Certificate) for 2018. Employees use the Form W-4 to establish marital status and withholding allowances for federal income tax withholding calculations. Here are answers to some frequently asked questions about the new W-4.
Q: Where can I find the 2018 W-4?
A: The 2018-W-4 can be found here. It is also available for download from HR411® in the Forms & Documents section of the Library.
Q: Why did the W-4 change?
A: The IRS typically releases a new W-4 each year, but the 2018 form was delayed because of the enactment of the Tax Cuts and Jobs Act (TCJA) in late 2017. Among other things, the TCJA increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discontinued certain deductions, and changed the tax rates and brackets beginning in 2018. The IRS updated the Form W-4 to reflect the changes made by the law.
Q: Who must complete the 2018 W-4?
A: New hires who complete a W-4 on or after March 30, 2018 must use the 2018 W-4. In the meantime, the IRS is allowing new hires to use the 2017 W-4.
The IRS will not require all employees to file new Forms W-4. However, employees who have previously furnished a W-4 may be required to file a new one if they have a change in their tax status (e.g., divorce) that would reduce the allowances to which they are entitled. Even in the absence of a requirement to complete a new W-4, it is advisable that employees review their withholding for 2018.
The IRS has said that it's especially important for people who have previously itemized their deductions, have two or more jobs in their household, or have dependents, to check their withholding. This is because, unless the employee has already filed a new Form W-4 in 2018, tax withholding calculated for 2018 payrolls could be based on outdated withholding allowances, particularly in light of the elimination of personal exemptions discussed below.
Employees who need to submit a new W-4 must begin using the 2018 W-4 by March 30, 2018. Up until then, they may use the 2017 Form W-4.
Q: How have allowances changed?
A: Most significantly, the TCJA eliminated personal exemptions. In 2017, each personal exemption (for the employee, any spouse and any dependents) reduced federal taxable income by $4,050 per person. In 2018, the value of personal exemptions is zero. Now, for 2018, employees are entitled to a value of each withholding allowance of $4,150. So to the extent that an employee's withholding allowances on file in 2018 represent personal exemptions, their withholding allowances may be overstated for 2018, which could result in tax under-withholding in an employee's paycheck.
The new IRS tax tables adjusted for this and other factors to some extent, but because Forms W-4 permit withholding allowances based on factors such as expected tax credits and itemized deductions (such as mortgage interest and state/local taxes), employers are not able to automatically adjust withholding allowances to eliminate personal exemptions.
Note: ADP implemented the tax table changes in RUN Powered by ADP® on January 19, 2018, 6 a.m. ET (for payrolls processed on or after that date/time).
Q: What should I do if an employee asks me for advice on whether they should complete the W-4?
A: If the employee has questions or asks for advice on whether (or how to) complete a W-4, direct them to the IRS's updated withholding calculator and instruct them to speak with a tax advisor. The calculator will ask a number of questions about income, marital status, anticipated deductions and eligibility for tax credits to estimate annual taxable income and suggest the most appropriate number of withholding allowances.
Q: Should I notify employees about the 2018 W-4 and calculator?
A: Employers should notify employees of the 2018 Form W-4 and withholding calculator. Here's a sample notice to employees.
Q: Where can I find more information on tax reform?
A: ADP has created a Federal Tax Reform Guide, which you can find here. The guide is updated as additional information, guidance, and resources become available.