IRS releases new withholding tables

Treasury 90% of wage earners will likely see higher take-home pay

As President Donald Trump's recent tax overhaul is rushed into law, with businesses expected to make the necessary payroll adjustments by February 15, the Treasury Department is requiring employers to use old forms applicable to the old tax system, known as W-4s, in calculating how much to withhold in taxes from employees' paychecks.

The Internal Revenue Service will need an additional $1 billion over the next two years to implement the new GOP tax law passed last month, National Taxpayer Advocate Nina Olson wrote in her annual report to Congress released on Wednesday.

"The Administration's monumental tax reform legislation continues to provide economic benefits for hard-working Americans". However, the IRS says it doesn't expect that tool to be online until "the end of February".

"These new tables will help deliver the tax cuts as soon as possible to as many Americans as possible, with as little disruption as possible", Mnuchin said at the White House press briefing. Trump administration officials said that the new guidelines should lead to bigger paychecks for 90 percent of all wage earners.

Top Democratic tax-writers have expressed concerns that Treasury may have applied pressure on the IRS to underwithhold from paychecks so that taxpayers would see a bigger boost to their paychecks during this election year.

But these tax withholding decisions are based on tax forms Americans file with their employers, known as W-4s, that were written to apply to an outdated tax system.

The new guidelines adjust how much income tax must be taken out from employee paychecks after taking into account exemptions claimed by employees on their IRS Form W-4, filed with their employers to help determine withholding. There are significant limitations on long-cherished deductions, such as the federal deduction for state income, property and sales taxes.

The law lowers tax rates, which is the primary reason Americans will see bigger paychecks next month, but it also limits or scales back tax deductions, changes that might not be realized until Americans file their tax returns. There are also new limits on the mortgage interest deduction, and the Child Tax Credit was expanded. We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes 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.

These tax changes are all scheduled to expire after 2025, though Republicans have said they want to make them permanent.

Related news: