The IRS released the final copy of the new Form W-4 on Wednesday, Feb. 28. The new form follows significant changes to the tax law with the enactment of the Tax Cuts and Jobs Act in December 2017.
In January, the IRS released updated withholding tables meant to reflect changes under tax reform, including elimination of personal exemptions and other deductions, increased child tax credit, and updated tax brackets. The new W-4 also accounts for these changes.
The 2018 Form W-4 retains the personal allowances worksheet and describes how employees may apply the credit for dependents in determining withholding allowances, the IRS said. The new form is four pages, compared with two pages for the 2017 form.
The last third of page one of the 2018 Form W-4, the portion that is to be separated and filed with employers, contains the same number of lines and entries as the 2017 form. The worksheets are similar but the 2018 form was modified to reflect changes under the tax code overhaul that was signed Dec. 22, 2017. For example, there is no credit for other dependents if total income exceeds $175,550 or $339,000 if married filing jointly.
Line 5 of the form asks for the total number of allowances that will be claimed, based on worksheets accompanying the W-4; this process differs from previous years.
New employees and employees making changes to their withholding, including employees claiming exemption, may use the 2017 Form W-4 until March 30, 2018. Employees that have already provided a Form W-4 do not need to complete a new form unless they would like to make changes to their withholding.
With the new form, the IRS also released an updated withholding calculator to help employees estimate the amount they should withhold for federal taxes. Employees are encouraged by the IRS to use the calculator to check their withholding to help avoid withholding too little and facing an unexpected penalty when they file their return as well as to help avoid over-withholding so that money can be saved on their paycheck instead of receiving a large refund. The withholding calculator webpage also notes that while the calculator works for most taxpayers, people with complex tax situations should refer to Publication 505, which is expected to be updated this spring.
For 2019, the IRS plans to make further changes involving withholding. The agency plans to work with businesses and the tax and payroll communities to explain and implement these additional changes.