The Treasury Department on Thursday released the withholding tables for the new tax law. Treasury Secretary Steven Mnuchin repeated at a White House press briefing on Thursday that he expects a jolt to economic growth from tax cuts, which will offset any revenue losses.
That also means employees can't assume that the new, lower withholding rates will cover everything they owe Uncle Sam for this year. Find out how much you should be paying to attract and retain the best applicants and employees, with customized information for your industry, location, and job.
The 2017 Annual Report to Congress from the IRS's Taxpayer Advocate Service, headed by Olson, discusses some of the challenges the IRS will confront as it implements the recently enacted tax reform legislation.
The withholding tables and guidance it puts out will be created to work with existing W-4s that employees have already filed, the agency said.
Democrats have ordered a review by the Government Accountability Office to determine whether the new tax guidelines are accurate.
Employers that use large payroll service providers are likely to incorporate those changes quickly so that your paychecks may start to reflect them in February. Personal exemptions are a core feature of the current withholding system, but now that they are eliminated, "it's necessary to build a new approach to withholding, which will take some time", the senior IRS official said.
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But for many taxpayers, they will need to assess whether the new tables really are withholding enough money so that they're not saddled with a big bill when they file their taxes next year.
The IRS has pushed back tax-filing season, which will begin Monday, Jan. 29, some 10 days later than last year and about two weeks later than previous years.
"As the National Taxpayer Advocate, I see daily the consequences of reduced funding of the IRS and the choices made by the agency in the face of these funding constraints", Olson wrote in the preface to the report.
The new withholding calculator - expected out in late February - will assist individuals with more complicated situations to fine-tune their withholding calculations, he explained. Taxpayers are encouraged to use the calculator to adjust their withholding once it is released. It's also important to note that the increase in net pay that shows up on all 2018 paychecks won't necessarily be the same thing as the total change in a worker's tax bill for 2018.
Congressional Democrats are concerned that in making those changes, the IRS may have caved to pressure from the administration to deliver immediate tax savings to workers' paychecks while exposing taxpayers to higher tax bills in 2019. There are new tax credits while other mainstays - like the $4,050 personal exemption - are gone. Treasury would achieve that, the lawmakers surmised in the letter, by pushing the IRS to change its formula for withholdings.