IRS Announces New Withholding Guidance for TCJA Will Make Use of Existing Form W-4

The IRS announced that the changes in guidance for withholding of income taxes required due to the passage of the Tax Cuts and Jobs Act (TCJA) will not require a new Form W-4 to be issued (IRS Website, IRS Statement – Withholding for 2018).  Thus, the form will continue to reference “exemptions” that will serve to adjust the amount of an employee’s withholding even though the law itself eliminates the actual deduction for personal and dependent exemptions.

The W-4 has always used exemptions to cover any reduction in taxes expected due to deductions, credits and other adjustments, not just the amount of adjustment in expected taxes that was created by the actual exemptions.  By continuing to use exemptions on the form, the IRS has greatly simplified the work of revising payroll systems to deal with the new tax law.

As the IRS notes on its December 26, 2017 posting on the website:

The IRS is working to develop withholding guidance to implement the tax reform bill signed into law on December 22.  We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February. The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time.

Use of the new 2018 withholding guidelines will allow taxpayers to begin seeing the changes in their paychecks as early as February.  In the meantime, employers and payroll service providers should continue to use the existing 2017 withholding tables and systems.