2018 Tax Reform Update

(8-10 minute read)

On June 6, 2018, the Internal Revenue Service (IRS) released a draft version of the updated W-4 form to be used in 2019. This form is the document that all employees, old and new, will be completing next year to guide their tax withholding. The revisions are driven by the 2018 Tax Cuts and Jobs Act (TCJA). In early January of this year we provided an overview of the changes, and later that month the tax tables for the 2018 were made available and were applied to all clients’ payroll. Publishing this draft now provides the Human Resources and Payroll leaders and systems time to prepare for the significant changes on the horizon.

What are the New Employer Requirements?

It is important to remember that the published form is a draft and will be subject to changes and influence from various concerned parties, including payroll companies, business advocates, labor unions and politicians. Completing new tax documents will not be legally required, however the new form has enough changes that most employees will benefit from completing a new form for the 2019 year. Our payroll system is being modified to comply with the new form and will support the 2018 form as well as the new 2019 form when the final version is released.

What is Changing?

It appears that the IRS’ direction is to update the W-4 to be a more complete view of individual income by incorporating income and deductions from income sources outside of the employer-employee relationship. Here are the highlights:

  1. Number of Allowances (Line 5) – is being removed and replaced with a new line 5.
  2. New Line 5 –Additions to Income. This line is intended to simplify the calculation of non-wage income subject to withholding such as investment income, interest income, etc. If desired, employees will be able to estimate the amount of compensation and no longer have to translate the income to a per payroll amount.
  3. New Marital Status – Head of Household is being added to single and Married Filed Jointly.
  4. New Line 6 – Itemized and Other Deductions. This line enables employees to show the projected deductions (state taxes, mortgage interest, etc.) which essentially balance out the Line 5 Additions to Income.
  5. New Line 7 – Tax Credits. This new line allows employees to document expected tax credits, many of which were expanded by TCJA such as the child tax credit.
  6. New Line 8 – Additional Income Due to Multiple Jobs. This line will accommodate additional income from individuals with either multiple jobs or working spouses. There are significant additional instructions forthcoming for Line 8, so stay tuned.
  7. Line 9 – Additional Amount to Withhold from Paycheck. This line is one of the few that remains unchanged from the prior form and allows for an additional per paycheck withholding to be added.

What Should Employers Do Now?

The form recently released by the IRS is a draft and we recommend against providing copies of the form to employees at this time. We recommend that employees who are concerned about the impact of TCJA consult the IRS W-4 calculator that was released earlier this year. The calculator is located HERE. This self-guided tool enables employees to review their income and tax settings to date, and identify any mid-year adjustments they want to make.

What is Coming Next on TCJA

Axios HR is committed to monitoring upcoming changes and ensuring that our technology is ready. Stay tuned to our Blog for updates as they are available, and please reach out with any questions.

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Date

June 8, 2018

Author

AXIOS HR

Category

Article Blog Entries Compliance