At the beginning of every year it is a good idea for workers to update form W-4 Employee’s Withholding Allowance Certificate. The purpose of the form is to claim the appropriate number of exemptions for the employee’s particular situation so that a sufficient amount of income taxes will be withheld throughout the year. Figuring the amount of exemptions to use may also require completing the Deductions and Adjustment Worksheet which provides a method for factoring in itemized deductions as well as income received outside of a W2 (i.e. dividends and interest).
The recently passed Tax Cuts and Jobs Act of 2017 eliminated personal exemptions and made significant changes to both standard and itemized deductions. These new rules have left the IRS scrambling to make the necessary adjustments so that employers are withholding based on the rates in the new tax law. The new withholding tables were just released and the IRS has instructed employers to begin using them as soon as possible and no later than February 15th. However, the form W4 hasn’t been updated to reflect the new tax law and the IRS hasn’t given a release date for when it will be. The IRS also says there will be a withholding calculator at some point for taxpayers to double check the withholding rate. For the time being taxpayers are left hoping that the changes in the tax tables are sufficient for avoiding an unwanted surprise when the tax return is filed.
For our Continuous Service clients we will incorporate the new tax rules into our comprehensive analysis of their overall situation. As always our tax planning goals are to maximize efficiency and lower costs – and to avoid surprises.