The IRS today released Notice 1036 that updates the income tax withholding tables for 2018 and that reflects changes made by the tax reform legislation enacted in December 2017.
The updated withholding information provided by Notice 1036 [PDF 744 KB] shows the new rates for employers to use during 2018.
Employers are to begin using the 2018 withholding tables as soon as possible, although no later than February 15, 2018, but are to continue to use the 2017 withholding tables until implementing the 2018 withholding tables.
If income tax was not withheld from the employee's regular wages in the current or immediately preceding calendar year, employers are instructed to use the method provided immediately above.
Because of changes to the Code, there was uncertainty regarding the appropriate flat rate to use for supplemental withholding. Today’s guidance establishes that 22% is the appropriate supplemental flat rate to use for supplemental wages of $1 million or less.
If a supplemental wage payment, together with other supplemental wage payments made to the employee during the calendar year, exceeds $1 million, the excess is subject to withholding at 37% (or the highest rate of income tax for the year).
Employers are instructed to withhold using the 37% rate without regard to the employee's Form W-4.
Regardless of the method used to withhold income tax on supplemental wages, they are subject to social security, Medicare, and FUTA taxes.
In general, a withholding rate of 24% applies to certain taxable payments if the payee fails to furnish a correct taxpayer identification number (TIN). This withholding is referred to as “backup withholding.”
According to a related IRS release—IR-2018-05—the IRS is also working on revising the Form W-4 and the “withholding tax calculator” to 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 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. Until a new Form W-4 is issued, employees and employers are to continue to use the 2017 Form W-4.
The IRS release states that the IRS anticipates making further changes for 2019 involving withholding.
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