CARL WATTS & ASSOCIATES

May 21, 2018

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Withholding Adjustments Necessary
for 2018
The tax items affected by TCJA for tax year 2018 of greatest interest to most of you who may have to change the Form W-4 include the following:

  1. The standard deduction for married filing jointly rises to $24,000. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,000; for heads of households, $18,000.

  2. The TCJA reduced the personal exemption which for tax year 2018 is $0.

  3. TCJA reduced tax rates for many taxpayers. The new tax rates are: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and a top rate of 37 percent. For tax year 2018, the highest tax rate will apply to married individuals filing jointly and surviving spouses with taxable incomes over $600,000, to single taxpayers and heads of households with incomes over $500,000, and to married taxpayers filing separately with incomes over $300,000.

  4. The TCJA eliminates the limitation for itemized deductions.

  5. The Alternative Minimum Tax exemption amount for tax year 2018 is greatly increased under TCJA. For tax year 2018, the exemption amount for single taxpayers is $70,300 and begins to phase out at $500,000, and the exemption amount for married couples filing jointly is $109,400 and begins to phase out at $1 million.


Miscellaneous deductions which exceed 2% of your AGI will be eliminated for the tax years 2018 through 2025. This includes deductions for unreimbursed employee expenses and tax preparation expenses.

The elimination of unreimbursed employee expenses only affects taxpayers who claim an employee-related deduction on Schedule A. If, as a business owner, you typically file a Schedule C, your business-related deductions are not affected by the elimination of Schedule A deductions.

The new IRS released withholding tables for 2018 are designed to produce the correct amount of tax withholding (avoiding under- and over-withholding of tax) for those with simple tax situations. This means that people with simple situations might not need to make any changes.

Simple situations include singles and married couples with only one job, who have no dependents, and who have not claimed itemized deductions, adjustments to income or tax credits.

People with more complicated financial situations might need to revise their W-4. Among the groups who should check their withholding are:

  1. Two-income families;

  2. People with two or more jobs at the same time or who only work for part of the year;

  3. People with children who claim credits such as the Child Tax Credit;

  4. People who itemized deductions;

  5. People with high incomes and more complex tax returns.

The federal withholding system provides the model that 41 states use to withhold state income taxes - nine states: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming don't have a state income tax. The income state tax, for the 41 states that require it, works pretty much like the federal income tax; of course rates differ from state to state.


You can use the IRS Withholding Calculator to decide what your withholding should be, although you would be better off just following the instructions for Form W-4 .

No matter the tool you decide to use, if you want to make sure you are taking the right decisions in all your dealings with the IRS, and especially so when new rules are in place, help form a tax professional is invaluable and more than necessary.
This year it is all about the Tax Cuts and Jobs Act (TCJA) approved December 22, Line F. Credit for other dependents.

While we are still waiting for the IRS to provide information and guidance to taxpayers, businesses and the tax community on all the hot tax topics, we advice all of you who are employees to have a paycheck checkup as early as possible so that, if a withholding amount adjustment is necessary, there-s more time for withholding to take place evenly throughout the year.




Employers are required to withhold the federal income tax that an employee is expected to owe based on salaries or wages. The amount withheld for federal income tax is based on the employee's salary or wages as well as personal information that the employee is required to provide the employer on federal Form W-4.

To adjust your federal withholding amounts from your paycheck, you must use Form W-4 and give it to your employer, not the IRS.

Typically, you fill out a form W-4 when you start a new job. Some employers will also ask you to complete a new form W-4 at the beginning of each year.


It is important to know that you should check your withholding when any of the following situations occur:

You receive a paycheck stub (statement) covering a full pay period in the year, showing tax withheld based on annual tax rates.

You prepare your previous year tax return and get a big refund, or a balance due that is:

  • More than you can comfortably pay, or
  • Subject to a penalty.

There are changes in your life or financial situation that affect your tax liability.

There are changes in the tax law that affect your tax liability.




Having too little tax withheld could result in an unexpected tax bill or penalty at tax time in 2019. Adjusting withholding after a paycheck checkup”can also prevent you from having too much tax withheld. With the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks.

We have already brought to your attention some of the following information in previous newsletters, but we cannot stress enough how important it is to plan ahead for your 2018 tax returns in view of the recent changes to the tax law.


The law changes of 2018 affect the tax returns you will file in 2019. The new law makes a number of major changes, including:

  1. Limiting the deductions for state and local taxes;

  2. Limiting the deduction for home mortgage interest in certain cases;

  3. Excluding deductions for employee business expenses, tax preparation fees and investment expenses, including investment management fees, safe deposit box fees and investment expenses from pass-through entities.


The TCJA nearly doubled standard deductions and changed several itemized deductions. Some of you who formerly itemized may now find it more beneficial to take the standard deduction, and this could affect how much you need to have your employer withhold from your pay. Also, even those who continue to itemize deductions should check their withholding because of changes made by the new tax law.
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