Updates to the Income Tax Withholding Tables and What You Need to Know


When you have employees, you need to stay on top of changing employment tax rates. Rates impact the amount of money you withhold from employee wages. To reflect recent legislation, there are new 2018 income tax withholding tables you need to know about.
Below, you will first find information about how withholding tables work. Then, you can learn about the new 2018 tables, when you must implement them by, and more.
What are income tax withholding tables?
You will use an employee’s Form W-4 and the income tax withholding tables to determine how much federal income tax to withhold from employee wages.
New hires are required to fill out Form W-4, Employee’s Withholding Allowance Certificate, when they start working at your business. On this form, the employee can claim withholding allowances. The more allowances an employee claims, the less you withhold for federal income tax. Employees can claim allowances for many reasons, including if they have dependents.
Once you have an employee’s withholding allowance information on Form W-4, you must use the income tax withholding tables found in IRS Publication 15. These tables provide ranges based on pay frequency, filing status, and withholding allowances.
There are two methods you can choose from to determine an employee’s federal income tax withholding:
• Wage bracket method
• Percentage method
Wage bracket method
If you use the wage bracket method, you must find the range the employee’s wages fall under. Then, using their claimed allowances, find the amount to withhold.
Percentage method
The percentage method is a little different. You must multiply the amount of one withholding allowance (explained below) by the number of allowances the employee claims and subtract that from the employee’s wages. Then, you must find the range for that number and calculate the tax amount.
2018 income tax withholding tables
Now, to the news. The IRS released new income tax withholding tables for 2018. According to the IRS, these new tables should result in increased paychecks for many employees.
The new tables have changes in tax rates and brackets, an increase in the standard deduction, and the elimination of personal exemptions. And, these changes work towards preventing over- and under-withholding of taxes.
As an employer, you need to use these new income tax withholding tables to run payroll as soon as possible, but absolutely no later than February 15, 2018. Until you start using the 2018 tables, continue using the 2017 ones. If you use online payroll software, information will automatically update.
The new 2018 income tax withholding tables work with the existing Forms W-4. However, the IRS is also working on revising Form W-4 for future use.
The IRS is also working on revising the federal tax calculator for withholding. According to the IRS, the calculator should be ready by the end of February.
Supplemental and backup withholding tax changes
The 2018 income tax withholding tables aren’t the only things that got updated. Supplemental wages and backup withholding rates changed, too.
Withholding on supplemental wages fell from 25% to the new 22%. The backup withholding rate fell from 28% to the updated 24%. You will withhold less in taxes on supplemental wages and backup withholding.
How will this affect employees?
The IRS publishes pages of federal income tax tables. Although we aren’t going to include all the income tax withholding tables, we will show the difference in the amount for one withholding allowance.
Use this chart to see one withholding allowance in 2017 and 2018. Remember, this is the amount you subtract from the employee’s wages to determine withholding using the percentage method.
Payroll Period          One Withholding Allowance (2017)     One Withholding Allowance (2018)
Weekly                                    $77.90                                                                                   $79.80
Biweekly                                $155.80                                                                                 $159.60
Semimonthly                        $168.80                                                                                 $172.90
Monthly                                 $337.50                                                                                 $345.80
Quarterly                               $1,012.50                                                                              $1,037.50
Semiannually                        $2,025.00                                                                             $2,075.00
Annually                                $4,050.00                                                                             $4,150.00
Daily or miscellaneous        $15.60                                                                                    $16.00
(each day of the payroll period)
Example
Let’s see how much you would withhold for an employee in 2018. You have a married employee with one withholding allowance and no pre-tax deductions. They earn $700 weekly. Using the above chart, you can see that the amount for one withholding allowance is $79.80 in 2018.
1. First, subtract $79.80 from $700 to get $620.20.
2. Using the 2018 income tax withholding tables, you find that this amount of $620.20 falls in the “Over $588 but not over $1,711” range. Look at the amount to withhold for this range.
3. The amount of income tax you must withhold for this range is $36.60, plus 12% of excess over $588.
4. Subtract $588 from $620.20 to determine the excess, which is $32.20. Then, multiply that number by 12%, which is 0.12. After, you must add that number to the flat rate of $36.60:
$620.20 – $588 = $32.20
$32.20 X 0.12 = $3.86
$3.86 + $36.60 = $40.46
You must withhold $40.46 from the employee’s wages for federal income tax.
Now, let’s see how much you withheld for that same employee using the 2017 tax tables, assuming all the facts (pay frequency, wages, withholding allowances, and filing status) are the same. Using the above chart, the amount for one withholding allowance is $77.90 in 2017.
1. First, subtract $77.90 from $700 to get $622.10.
2. Using the 2017 income tax withholding tables, you find that the amount of $622.10 falls in the “Over $525 but not over $1,626” range. Look at the amount to withhold for this range.
3. You must withhold $35.90 plus 15% of excess over $525.
4. Subtract $525 from $622.10 to determine the excess, which is $97.10. Now, multiply $97.10 by 15%. Then, add that amount to the flat amount of $35.90.
$622.10 – $525 = $97.10
$97.10 X 0.15 = $14.57
$14.57 + $35.90 = $50.47
You withheld $50.47 each week from your employee’s wages.
Due to the new income withholding tables, the employee receives an extra $10.01 ($50.47 – $40.46) each pay period.

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