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[Video] Tax Reform and Your Business: Tax Tables and Form W-4 Changes

Compliance
Video
01/11/2018

Tax tables and withholding rates have changed under the new tax bill, and a notable impact for employers is changes to Form W-4. What are the changes, and what should businesses prepare to do?

More tax reform videos: General overview | Employer tax credit for paid family and medical leave | Pass-through entities and accelerated depreciation | Affordable Care Act changes | States' response

Full transcript:

Hi, I'm Laurie Savage, senior compliance analyst at Paychex. And, today, we're going to talk a little bit about how the federal tax overhaul has impacted employer withholding. Withholding is, generally, related to individual income. The withholding tables – so with the changes to individual income, the withholding tables, generally, follow individual income, so that you can reconcile at the end of the year, more appropriately.

With that, the IRS now knowing what the changes to individual income is, has to make the changes to withholding tables, so that at the end of the year, individuals are closer to their tax liability. Now what that means is that they're going to release new tables.

They're working on them currently. And they're anticipating that they'll be out in January for an implementation date with, generally, payroll service providers and employers, for February. So we're using the old tables now, which means that employees, right now, won't see much difference in their paychecks at all because we're working on old tables.

We're unsure whether the new tables will take into account that they're being implemented after January 1. So that retroactive rate. I know the IRS is trying to work out some of those details right now.

And the other thing that goes along with withholding is the W-4. That's how you determine how much an individual has withheld from their pay checks. So the W-4 the IRS said, at the end of December, that they were going to base the new tables off the current W-4. But there have been significant revisions to the way individual income tax works, particularly, that there is no longer a personal exemption. The standard deduction was almost doubled up to $24,000 for married filing jointly and $12,000 for single individuals. The current W-4 bases a lot on personal exemption.

In addition, there was a child tax credit that was doubled and also allowed more people to have access to it. So we're not quite sure exactly how the IRS will base withholding off of the current W-4 because the current questions don't exactly coalesce with it. So we have a lot of questions there.

And I'm sure a lot of employers will be getting questions from their employees at what they should do. And we're hoping we get further guidance on how they should use the old W-4 with the new withholding tables when all this comes out with the IRS. So we'll all have to wait and see what that looks like. I know they're – that, hopefully, we'll have more by the end of this month.

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