On February 28, 2018, the IRS 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.
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. For example, the Act eliminated personal exemptions, so if any withholding allowances on file represent personal exemptions, an employee’s withholding allowances may be overstated for 2018, which could result in tax under-withholding. To some extent, the new withholding tables adjusted for this and other factors, however, as a best practice employees should check their withholding and some may want to file a new W-4 with their employer to help avoid possible over or under withholding from their paychecks.
According to the IRS, employees who previously itemized their deductions, have two or more jobs in their household, or have dependents, should check their withholdings.
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.
The IRS also released an updated withholding calculator that employees can use to check their withholding. 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.
Employers should notify employees of the 2018 Form W-4 and withholding calculator. Here’s a sample notice to employees.
State Forms W-4 May Also Change
Many states maintain tax laws that are closely aligned with federal law, and many states permit employers to rely on the federal Form W-4 for state income tax withholding purposes. The elimination of personal exemptions in federal law may cause several states to revise their equivalent withholding allowances forms and/or issue new guidance to employers.
Supplemental Wage Withholding Rate Clarified
Updated January 12, 2018: In Notice 1036, the IRS also clarified withholding on supplemental wages, such as bonuses, under the Act. When an employee receives $1 million or less in supplemental wages during 2018 and those wages are identified separately from regular wages, the flat withholding is 22 percent. When an employee receives in excess of $1 million in supplemental wages, the withholding on the excess is 37 percent, according to the IRS.
Each year items are donated to charity, did you know that in certain circumstances you can receive a tax deduction for your donations.
Planning Tip: Most cell phones today can take pictures. Take a picture of all items donated. Keep the electronic pictures for proof the items were in good or better condition at the time they were donated.
Recordkeeping Rules for Charitable Contributions
To help substantiate a deduction for the fair market value of used items donated to charity, make a list of each item donated on a separate sheet of paper along with the following information. • Name and address of charity. • Date items were donated to the charity. • Description of each item donated. • Fair market value of each item at the time they were donated (see the list on this page). • Date each donated item was originally purchased or acquired. • Cost or other basis of each item donated.
For a guide to the fair market value of your donations and to help you keep track of the value of your donated items download this handy guide.
Federal Tax Reform: What It Means for You