As part of your onboarding process, you’re responsible for having new employees complete a Form W-4 that indicates their withholding allowances. This form also can be updated throughout the year when an employee’s personal or financial situation changes.

On February 28, the IRS released a new Form W-4, largely in response to the Tax Cuts and Jobs Act passed last December. Understanding updates like these is necessary to stay current and fully compliant. Here are four important considerations regarding your payroll processing and W-4 employee recordkeeping:

  1. The new W-4 is longer, with expanded IRS instructions – An employee’s completed W-4 affects how much federal income tax you withhold from his/her pay. The new version of the W-4 was created to get individuals closer to their true tax liability under the new tax law. Going from two to four pages, the multiple-part W-4 covers the actual Employee’s Withholding Allowance Certificate, new instructions on how to claim exemption from withholding for 2018 (different from 2017), and three worksheets to help employees figure out allowances under various circumstances.

    The worksheets — Personal Allowance Worksheet; Deductions, Adjustments and Additional Income Worksheet; and Two-Earners/Multiple Jobs Worksheet — were updated to implement changes from the Tax Cuts and Jobs Act. For example, the Personal Allowances Worksheet includes information on the child tax credit increase.

  2. You don’t have to send the W-4 to the IRS unless the agency requests it. You must keep a copy on file, however, for at least four years after taxes are due or paid.
  3. You don’t have to send the W-4 to the IRS unless the agency requests it. You must keep a copy on file, however, for at least four years after taxes are due or paid – An IRS withholding table shows how much tax to withhold from an employee’s paycheck, based on the employee’s wages, marital status and number of claimed allowances on the W-4. Under Notice 1036, the IRS modified the withholding tables for 2018. The withholding tables also reflect a handful of changes under the new tax law, largely an increase in the standard deduction, repeal of personal exemptions, and changes in tax rates and brackets. Although the new tables work with W-4s already on file, all employers should use the tables as soon as possible, no later than Feb. 15, 2018.
  4. Employees may want to check their withholding and complete a new W-4 – Current employees aren’t required to update their W-4s, but may choose to do so after conducting a “paycheck checkup” with the updated IRS withholding calculator. This easy-to-use online tool will help them determine if they’re having too much (or too little) taken out of their pay. “Withholding issues can be complicated, and the calculator is designed to help employees make changes based on their personal financial situation,” says Acting IRS Commissioner David Kautter. Keep in mind: Employees are entitled to update their W-4s — any time throughout the year — for a variety of reasons, such as marriage, divorce, a change in dependents or a significant salary increase.
  5. Employees who adjust their withholding this year should check their status again in early 2019. This can help protect against having too little withheld, especially because a mid-year withholding change could have a different full-year impact in 2019.
  6. The I-9 & W-4 app simplifies mandatory employee paperwork – Keeping up with IRS changes is effortless with the I-9 & W-4 app. The I-9 & W-4 app features the most recent version of the W-4, to ensure compliance with ever-evolving state and federal requirements. (In fact, the app was updated the day after the IRS released the 2018 W-4.) When you use this app to onboard new employees, no further action is necessary. Through an easy, automated process, your employees will be linked automatically to the 2018 W-4. They’ll also receive on-screen guidance from our in-house legal experts to ensure proper completion.
Key Takeaways
  • Employers need a W-4 from employees to withhold the correct amount of federal income tax from their pay
  • The IRS released new withholding tables in January, followed by a new 2018 W-4 on February 28
  • The 2018 W-4 is four pages long, with new instructions and three updated worksheets to reflect tax reform changes
  • The easy-to-use I-9 & W-4 app features the latest version of the W-4 for full compliance