Withholding Tax Law Changes in 2018

When Congress began debating possible tax law changes in late 2017, there was a lot of controversy and confusion about just how much individual taxpayers would benefit, and until now it has essentially been a guessing game.

Now, however, individual taxpayers can get a more precise idea of our tax liability under the new Tax Cuts and Jobs Act (TCJA) that took effect on January 1st of this year. The Internal Revenue Service has updated its online withholding calculator; this is the first step that IRS has taken to help improve the accuracy of withholding after the major changes made by the new tax law. The updated withholding information posted on their website (IRS.gov) shows the new rates for employers to use during 2018. The IRS urges employers to start using the new data as soon as possible, but can start applying them no later than February 15, 2018.

“Following the major changes in the tax law, the IRS encourages employees to check their paychecks to help ensure they’re having the right amount of tax withheld for their personal situation,” said Acting IRS Commissioner David Kautter in announcing the withholding calculator’s updates.


Many employees will start to see increases in their paychecks as soon as February. The time it will take for employees to see these changes may vary depending on how quickly the new tables are implemented by their employers and how often they are paid (weekly, biweekly or monthly). According to the IRS, about 90% of wage earners are already seeing an increase in their paycheck this month now that the 2018 federal tax withholding tables are being put into effect.

“Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation,” Kautter said. “Taking a few minutes can help taxpayers ensure they don’t have too little — or too much — withheld from their paycheck.”


Adjusting your tax withholding really is the best and simplest way to ensure that you don’t over- or under-pay your taxes. Your objective should always be to get your withholding amount as close as possible to your actual annual tax bill. Over- or under-paying your taxes could lead to a more complicated process at tax time. If you don’t withhold enough money from your paychecks, you will end up having to pay the difference when your file your tax return. Owing a little isn’t necessarily bad if the tax due is relatively small. But if your calculations are off and you’ve have way too little tax money withheld, you could have a big bill due at tax time, which could pose a problem.

On the other hand, if you withhold too much, you’ll get a refund, which a lot of people think is a good idea — in fact, there are some people who intentionally have too much tax withheld from their paychecks, using this system as a forced savings account. If you make the choice to do that, the calculator can even help you determine how much of a refund you’d like to receive! To make things a bit easier to remember, as a general rule, entering a smaller number for withholding allowances, the higher your tax withholding will be, and entering a bigger number means less tax will be withheld, resulting in a smaller tax refund and potentially a tax bill or penalty.


If you are going to use the online calculator, the IRS has some tips so that you can get the most out of it…

  • Have your most recent pay stub on hand. Check to make sure it reflects the amount of federal income tax you’ve had withheld so far this year.
  • Have handy a completed copy of your 2017 tax return, or 2016 filing if you haven’t filed yet this year. Information on a prior return can help you estimate income and other items for 2018. (Note, though, that the new tax law significantly changed popular itemized deductions.)
  • Don’t worry about your personal identifying info such as such as your Social Security number, address or bank account numbers. Heck, it doesn’t even ask for your name. None of that is necessary to get an idea of how much you want withheld. Remember this if you ever get an email about missing withholding calculator information. That will be a crook trying to scam you and steal your tax identity.
  • Keep in mind the withholding calculator’s results are only as accurate as the information entered. If your circumstances change during the year, come back to the calculator to make sure your withholding is still correct.


In addition to these helpful tips, the IRS will continue to help inform taxpayers about the new withholding guidelines and how best to use the calculator in an effort to help workers ensure that they are not having too much or too little withholding taken out of their pay.

Whatever your tax situation is in the wake of the newly passed tax laws, you might want to consider correcting your payroll withholding to ensure that your withholding is exactly where you need it to be for the rest of the 2018 tax year.

Contact your tax professional for more details on your specific situation.

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