Tax Reform, how will it affect my paychecks in 2018?
The recently passed tax reform package (The tax cut and Jobs act) will lower Federal Income taxes for almost all Indiana taxpayers in 2018. That being said, this is not a broad based tax reduction; some people will see no effect, some a small tax reduction, and some a large Federal income tax deduction in Indiana. In high tax states (New York, New Jersey, California, etc) a significant number of people will see their taxes actually increase under this tax reform plan. Under the current law employees must fill out a W-4 form and submit it to their employer. Their employer uses the information on the W-4 form to determine how much income tax is to be withheld from each employees paychecks. The W-4 form was designed with the tax system that is going through large changes on 1/1/2018. It is unclear whether the IRS will create a new W-4 form. There is no doubt the IRS will create a new with-holding table for all employers to use.
The Internal Revenue Service (IRS) and the Department of The Treasury are working together to determine how to deal with this in early 2018. The Republicans really want people to see their paychecks increase due to having less money with-held by their employer for Federal income taxes and they want this to happen right away so they can take credit for it. Several Government officials have promised to have a new system in place by February 1st, 2018. It seems likely that the following will happen:
- The IRS may or may not develop a new W-4 form. I personally feel they will have to redesign the W-4 form because the tax reform bill effects people so differently. Further I think it will be difficult for the IRS to design a form that accurately predicts what different people’s taxes will be under the new tax reform plan.
- I think then the IRS will demand that all employers in the United States distribute and collect signed and dated W-4 forms from all of their employees; possibly in late January of 2018.
- Next I think the IRS will distribute new with-holding tables that all employers will be required to use moving forward.
I am not sure how long this will take; however, I think the Republican Goal of getting all of this done by February 1st, 2018 is a very aggressive goal and I will be impressed if they can meet the goal they have set for themselves. Were I a betting man; I would bet that the February 1st goal will not be met. I think sometime in March is much more likely.
Mike Sylvester, CPA