Hiring new employees with the 2018 Tax Act

February 26, 2018   |   Blog

When you hire a new employee, they must fill out a W-4 form telling you, their employer, how they want their federal withholdings. Single, married. Number of withholding allowances.

The Internal Revenue Service has issued a notice providing guidance for employees and employers on what to do with the Form W-4 under the new Tax Cuts and Jobs Act. They have extended. 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 by using the 2017 Form W-4. Note that “withholding allowances” was used both for dependents and other things. Since there is no longer a deduction for dependents, it may be necessary for ALL employees to file new W-4 forms. We will stay on top of this and notify you on a future blog when this becomes clear.

The new IRS notice also 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 The new guidance also specifies that the optional withholding rate on supplemental wage payments is 22 percent for taxable years 2018 through 2025.

In addition, it says that, for 2018, withholding on annuities or similar periodic payments where no withholding certificate is in effect is based on treating the payee as a married individual who is claiming three withholding allowances.

The new tax law that Congress passed has led to confusion among many employers and employees since it eliminates many longstanding provisions of the tax code, including personal exemptions. Earlier this month, the IRS updated the withholding tables, and promised further guidance would be on the way. It also promised an online tax withholding calculator would be posted on its website where employees could double check their withholding to make sure it’s correct.