Employers Must Make Quick Changes in Wake of Tax Cut Overhauls

The Tax Cuts and Jobs Act (TCJA), recently passed by Congress and signed into law by President Donald Trump, will make significant changes to how employers withhold taxes from their employees’ paychecks. As we move into the New Year, payroll departments will need to implement new processes quickly to remain in compliance.

As of January 1, 2018, the new tax law completely eliminates the personal exemptions workers had been using to calculate how much money should be taken from their paychecks on their W-4 forms. Some workers may need to complete and submit new forms, although the IRS has stated that existing W-4 forms will continue to work with the implementation of the new law.

The lack of time and instruction available is mostly due to how quickly the bill was passed. For now, most employers will need to figure out the changes they must make before the standard January 31 filing deadline.

New tax withholding guidelines

Under the TCJA, employers will continue to withhold federal income taxes from wages based on the bracket under which each worker falls. While there are still seven brackets, most now have a different rate attached to them. Here’s how it breaks down under the new law:

2017 Federal Tax Rate
2018 Federal Tax Rate
10% 10%
15% 12%
25% 22%
28% 24%
33% 32%
35% 35%
39% 37%


As outlined in the table above, five of the seven brackets are now associated with a different rate than they were in 2017 tax year.

Additionally, the TCJA suspends the personal exemption deduction, although the law does allow for the IRS to administer the same tax withholding rules previously in place and ignore this provision for one year. It is yet to be seen if the IRS will opt for this action.

What employers should do (for now)

Until the IRS updates Notice 1036, you should continue using the 2017 percentage method or income tax withholding tables provided in Publication 15. Once the IRS makes an update, however, you will need to make changes based on an IRS-mandated timeline. (This timeline will be included in the agency’s update.)

It’s also important to be active about communicating with employees about the changes—including those that are not yet happening. Some workers may expect to see immediate changes to their federal income tax rates and may wish to adjust their W-4s, which could lead to confusion. To get ahead of the issue, communicate with employees that you are awaiting further guidance from the IRS and will follow up with more information as it is available.

At Cirrus Payroll, we are paying close attention to the latest news on the tax bill and how it will affect payroll processes for employers across the country. These changes will be incorporated into the software and solutions we deliver to our clients.