The new tax reform is proving to have big effects on every area of tax, including things that have remained unchanged for years like Form W-4.
Form 4-W is a tax form most Americans are familiar with. It’s the form every employer has employees fill out to make sure they withhold the correct amount of federal income tax from their paycheck. With the major changes brought about by the recent tax reform, however, this standard form will need to be updated to reflect the new laws.
The IRS recently announced that it is currently working on revising Form W-4 to reflect the changes made by the Tax Cuts Act, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and the repeal of dependent exemptions. The new guidance also specifies that the optional withholding rate on supplemental wage payments is 22 percent for taxable years 2018 through 2025.
To help businesses and individuals prepare for the changes to the W-4, the IRS recently released Notice 2018-14, which the IRS stated is “designed to help employers and employees with a variety of withholding matters during and after the transition to new, reduced tax rates and updated withholding tables.”
Notice 2018-14 extends the effective period of Forms W-4 furnished to claim exemption from income tax withholding for 2017 until Feb. 28, 2018, and temporarily allows employees to claim exemption from withholding for 2018. The notice suspends a requirement that employees must give their employers new W-4 forms within 10 days of a change of status resulting in fewer withholding allowances. However, the 2018 Form W-4 might not be released until after Feb. 15.
While the many of the tax law changes that affect Form W-4 are already in effect, because the laws changed so drastically and rapidly, the IRS is taking a little extra time to catch up. But the exemptions listed in Notice 2018-14 are designed to help ensure that the delay in the changes to Form W-4 won’t negatively impact Americans.
When the new Form W-4 is released, it’s important for individuals to make sure that they update their information by filling out a new form. The new form is expected to be released in the second half of February so if you need to fill out a new W-4— and the majority of working Americans will— make sure you do so when the form is finally released. Need help filing other tax forms? Vanguard Tax Relief offers tax services to help ensure your tax files are accurate, up-to-date, and delivered on time.