March 16, 2018

IRS Releases 2018 Form W-4 and Updates Withholding Calculator

The 2018 Form W-4, Employee’s Withholding Allowance Certificate, released Feb. 27 by the Internal Revenue Service, applies the same general approach to determining withholding allowances as the 2017 form. The form retains personal allowances for 2018, although personal exemptions were eliminated in the new tax law.

An updated withholding calculator for use with the W-4 was released Feb. 28 by the IRS. The online calculator is designed to help employees determine the correct amount of federal income taxes to be withheld each pay period because of the tax law changes.

The personal allowances worksheet used in the 2017 W-4 was retained because the 2018 federal income tax withholding tables already account for changes made under the tax code overhaul, Scott Mezistrano, IRS representative for industry stakeholder engagement and outreach, said March 1.

Forms W-4 are completed by employees to inform employers of marital status and the number of withholding allowances to be claimed for federal income tax purposes. The amount of one withholding allowance on an annual basis increased to $4,150 in 2018 from $4,050 in 2017, the IRS said.

The 2018 W-4, which is four pages instead of two, reflected the increase in the standard deduction resulting from the tax code overhaul that was signed Dec. 22, 2017 (Pub. L. 115-97). The standard deduction increased to $24,000 for those married and filing jointly, up from $12,700 in 2017; $18,000 for those filing head of household, up from $9,350; and $12,000 for single filers, up from $6,350.

The W-4 also described how employees may apply the credit for dependents in determining withholding allowances, the IRS said. The personal allowances were retained even though the personal exemption was eliminated to generally keep employees in the same position as they were in the past, Mezistrano said during the monthly teleconference with payroll professionals.

The last third of page one of the 2018 W-4, the portion that is to be separated and filed with employers, contained the same number of lines and entries as the 2017 form. The worksheets were similar, but the 2018 form was modified to reflect changes under the tax code overhaul. For example, there was no credit for other dependents if total income exceeded $175,550, or $339,000 if married filing jointly.

The Form W-4 does not allow exemption from withholding in 2018 for employees who are 65 or older or who are blind. The form allows exemption from withholding only if an employee had a right to a refund of all federal income tax withheld in 2017 because the employee had no tax liability and the employee expects a refund of all federal income tax withheld in 2018 because the employee expects to have no tax liability.

Check on Witholding

The general instructions for the W-4 state that the withholding calculator,, may be used to determine tax withholding more accurately and to compare the amount of tax withheld against projected total tax for 2018. The IRS encouraged employees to use the calculator to check their withholding because of the changes related to the new tax law. Filers using the calculator do not need to complete Form W-4 worksheets and are not required to file a new form, the IRS said.

If withholding changes are to be made, the calculator provides employees with the information needed to fill out and submit a new Form W-4 to their employer, the IRS said.

Although the withholding changes do not affect 2017 tax returns due in April, a completed 2017 individual tax return may help taxpayers work with the calculator to determine the proper withholding for 2018 and avoid issues when they file next year, the IRS said.

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, it said.

Implementation Phases

Mary Hevener, a partner with Morgan, Lewis & Bockius LLP, discussed four phases to full implementation of the tax code changes during a Feb. 27 Bloomberg Tax webinar. The first phase occurred Jan. 11 with the release of new withholding tables in Notice 1036. Employers were told to continue accepting the 2017 Form W-4 until further notice, she said.

The second phase, which occurred Jan. 29 with the release of Notice 2018-14, gave employees additional time to claim exempt from withholding in 2018 and to file Form W-4 if their status changed, she said.

The third phase, which now is taking place, involves the release of the 2018 Form W-4 and withholding calculator, Hevener said.

The fourth phase, which could come in the fall, would likely involve the release of the 2019 Form W-4 and withholding tables, she said.

The Form W-4, the online calculator, and accompanying guidance appear to have answered some questions, such as confirming that employees may continue to claim personal allowances through 2018 and that employees generally would not be required to refile the form this year.

Reactions to the Form

The American Payroll Association was pleased with the 2018 Form W-4, said Alice Jacobsohn, the association’s senior manager for government relations. The IRS stayed with the original form style, but made changes to the personal allowance worksheet because of the tax law, she told Bloomberg Tax on March 1.

The tax law established a dollar range for employees to calculate the child tax credit. This means employees first have to determine where they fall in the dollar range before adding the relevant number, rather than just entering a “1" in the box, Jacobsohn said. The move appears to be transitional for 2018, she said.

The IRS also added Box 9, which allows employers to enter the date of employment for new hires, she said. Employers must complete Box 9 if they are sending the form to a state directory of new hires.

There is currently missing information for employees regarding credits for other dependents in the personal allowance worksheet because the 2018 Publication 505, Tax Withholding and Estimated Tax, has not been released, Jacobsohn said.

Publication 505 is to be released in the spring, Mezistrano said, but employees should complete the worksheet now and return to it after the publication is released. 

Although the form has not changed, employees may be confused by the tax changes, said Charlotte Hodges, payroll manager with Willis Towers Watson. The question is whether employees will be able to take the form and apply it to what their liability will be, Hodges told Bloomberg Tax on March 1.

Employees should read the form instructions completely before asking questions, said Hodges, who is a member of the Bloomberg Tax Payroll Library Advisory Board. The IRS has given employees a useful tool in the online calculator to determine their withholding, she said.

Payroll Administration Guide, 29 PAG 4 (Mar. 7, 2018). Copyright 2018 by The Bureau of National Affairs, Inc. (800-372-1033) <>.