The Internal Revenue Service on January 11, 2018 released Notice 1036, which updates the income-tax withholding tables for 2018 reflecting changes made by the 2017 Tax Cuts And Jobs Act. The new law increased the Standard Deduction, limited or eliminated certain Itemized Deductions, removed Personal Exemptions, and changed the tax rates and tax brackets. That being the case, it was necessary for the IRS to update the withholding tables to reflect these changes and the fact that fewer taxpayers will be itemizing deductions.
Why fewer taxpayers will be itemizing:
Increase Of Standard Deduction – A substantial increase to $12,000 for single filers (was $6,500), $18,000 for heads of household (was $9,550), and $24,000 for joint filers (was $13,000).
Limit On Deduction For State And Local Taxes – A taxpayer may claim an itemized deduction of only up to $10,000 ($5,000 for a married taxpayer filing a separate return) in (i) personal state and local property taxes, and (ii) state and local income taxes (or sales taxes in lieu of income taxes). Taxes paid or accrued in carrying on a trade or business are not subject to this limitation.
Limit On Deduction Of Mortgage Interest – For mortgages incurred after December 31, 2017, taxpayers may deduct interest on up to $750,000 of principal (mortgages existing before January 1, 2018 are still subject to the pre-existing law’s $1 million limit). But for all taxpayers there is no longer a deduction for interest paid on home equity loans.
Elimination Of Miscellaneous Itemized Deductions And Deduction For Moving Expenses – A taxpayer can no longer deduct miscellaneous itemized deductions which include unreimbursed employee expenses and tax preparation costs. Also the deduction for moving expenses is gone.
New Withholding Rates Effective Now.
The updated withholding tables shows the new rates for employers to use during 2018. Employers should begin using the 2018 withholding tables as soon as possible, but not later than February 15, 2018. In the meantime, employers can continue to use the 2017 withholding tables until implementing the 2018 withholding tables.
Many employees may begin to see increases in their paychecks to reflect the new tax law in February 2018. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid — generally weekly, biweekly or monthly. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances so employees should not have to do anything at this time.
For people with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding but to make sure that you are avoiding over-withholding or under-withholding of tax, you should consult with a tax professional.
What Should You Do?
You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Inland Empire (Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.