All You Need to Know About the New Payroll Tax Rates
Have you been wondering what happened to your paycheck? Why do the amounts withheld look different? And why did your salary get a boost?
Got questions about payroll taxes? We’ve got answers!
A chunk of money is hacked off your gross income each payday. This money goes toward payroll taxes, which, in turn, supports Social Security, Medicare and other social insurance benefits. You also pay a federal income tax each month, which helps fund public education, transportation, the state police and parks. Most states collect a state income tax as well.
The exact amounts you’ll have withheld from your paycheck changes every year and varies according to your income level and your W-4.
Several months ago, the IRS released the income-tax withholding tables for 2018. While these tables are updated annually, this year the changes incorporate the recent tax code reform and are more significant than usual.
If you are an employer
Business owners were instructed to implement the new withholding rates no later than Feb. 15, 2018. The IRS has made this step as easy as possible for employers by designing the new tables to work with the W-4 forms that have been previously filled out by their employees.
If you have not done so already, make sure your company’s payroll incorporates the new rates. You can use the payroll tax calculator on IRS.gov to ensure you are fully compliant with the law. Failure to do so can result in tax penalties.
If you are an employee, you may have noticed a slight increase in your paycheck over the last few months. You can thank the government for this raise! The revised tax code made several changes that affect the average taxpayer, mostly for the good. To review your new payroll tax rates, check out the full table of changes here.
What you need to do now
It is your responsibility to review and update your W-4 as necessary. It’s always a good idea to occasionally review your W-4. But with the new tax laws in place, it’s even more important to make sure your chosen exemptions and deductions incorporate the new changes.
Also, it’s crucial that you have the right amount withheld from your paycheck. Withhold too little, and you’ll owe the IRS a chunk of money next tax season; withhold too much, and you’ll get a huge refund instead of letting that money grow all year.
It is especially important to review your forms if you itemize your deductions, own your home, or have recently gotten married or had a child.
To determine whether you’re withholding the optimal amounts, use the IRS calculator on IRS.gov. You can figure out your most favorable withholding amount. If it’s different from what you see on your paycheck, be sure to tweak your W-4 accordingly.