All You Need To Know About The New Payroll Tax Rates

Phew! Your income taxes are filed and you can finally rest easy with that huge choreTax Form With note about 2018 tax laws now over and done. But that doesn’t mean you don’t have to think about taxes again until it’s time to file for 2018. The US tax code has a bigger impact on your life than you think.

Don’t believe us? You don’t have to – just take a look at your most recent paycheck. Have you been wondering what happened to it? Why do the amounts withheld look so different? And why did your salary get a little boost? Were you given a raise you don’t know about?

If you’ve got questions about payroll taxes, we’ve got answers!

First, let’s take a quick look at the background and purpose of payroll taxes. As you probably know, a big 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 various other social insurance benefits.

You also pay a federal income tax each month, which helps fund public education, transportation, the Department of Corrections, the state police, and parks. And, unless you live in Texas, Florida, Washington, Nevada, Tennessee, Wyoming, New Hampshire, South Dakota, or Alaska, you’ll need to pay a state income tax as well.

The exact amounts being withheld from your paycheck changes a bit every year and varies according to your income level and the W-4 you filled out when you first started working at your job.

Several months ago, the IRS released the income-tax withholding tables for 2018. While these tables are updated annually, this year, the changes need to 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 as quickly as possible, but no later than Feb. 15, 2018. The IRS has ensured that this step will be as easy as possible for employers by designing the new tables to work with the W-4 forms that have already been filled out by their employees. (The IRS is currently revising the old W-4 to reflect the recent changes, such as variations in available itemized deductions, increases in the child tax credit and the repeal of dependent exemptions.)

If you have not done so already, make sure your company’s payroll reflects the new rates. You can use the payroll tax calculator on to ensure you are fully compliant with the law. It doesn’t pay to be negligent about this: Failure to pay the correct amounts of income tax in a timely manner can result in hefty tax penalties.

Paycheck changes

If you are an employee, you may have noticed a slight increase in your paycheck over the last few months.

You can thank the good ol’ government for your surprise pay raise! The revised tax code made several changes that affect the average taxpayer, mostly for the good. If you’re wondering what your payroll tax rates look like now, you can check out the full table of changes here.

Most notably, the new law increases the standard deduction, repeals personal exemptions and shuffles the general tax rates and brackets around a bit. For the average employee, these changes mean a boost in their income.

What you need to do now

It is your employer’s responsibility to ensure the amount withheld from your paycheck reflects the new rates, but it’s up to you to review and update your W-4 as necessary.

You filled out this form when you started your current job, but you are allowed to change it whenever you’d like. It’s always a good idea to review your W-4 every now and then, but with the new tax laws in place, it’s even more important for you to do so. You want to ensure your chosen exemptions and deductions incorporate the new changes.

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.

Also, it’s especially important to review your forms if you itemize your deductions, own your home, are self-employed, have recently married or recently had a child. One small change on your W-4 can make a huge difference in your taxes.

To determine whether you’re withholding the optimal amounts, use the IRS calculator on You’ll be asked to input information about your paycheck and personal life, and then you’ll be told the amount you should be withholding. Hold that number up against what you see on your paycheck. If the amounts match, you’re doing fine. If they’re off, be sure to see your HR representative about changing your W-4 to optimize your withholding amount.

The US tax code may be a pain to deal with sometimes, but for most of us, the recent tax reform is good news. Make sure you’re taking full advantage of the new payroll tax rates!

Your Turn: If your paycheck got a boost this year, what are you doing with that bit of extra cash? Do you spend it or save it? Share your ideas with us in the comments!


What Were The Actual 2018 Tax Changes?

Q: There was so much talk about the proposed changes to the tax code. Now that the Tax forms with post-it notechanges have finally been signed into law, I’m wondering which planned modifications actually became a reality. What were the exact changes made to the U.S. tax code this year?

A: Many of the changes signed into law with the official Tax Cuts and Jobs Acts were quite different from those planned. Remember, though, that none of these changes will take effect until April 2018 at the earliest.

Let’s take a look at exactly how the tax code will be different for 2018.

1.) Changes for the seven income brackets

The current administration initially planned on condensing the income bracket system into just three brackets. However, when the law was finally passed, the seven-bracket system remained in place, though income levels for each bracket were tweaked.

The old income levels for the seven brackets were as follows: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The new rates are now 10%, 12%, 22%, 24%, 32%, 35% and 37%.

2.) Removal of Obamacare penalties

While the administration was not successful in repealing the Affordable Healthcare Act, there will be no penalties for those who choose not to have adequate health coverage starting in the year 2019. For your 2017 and 2018 taxes, though, you will still need to provide proof of health coverage or be held liable for the penalty.

3.) Changes in standard deductions and personal exemptions

The personal exemption has been eliminated, while standard deductions have increased.
In 2017, the standard deduction for the single taxpayer was $6,350, in addition to one personal exemption of $4,050. For 2018, those deductions will be combined into one larger standard deduction of $12,000 for those filing separately, and $24,000 for joint filers.

4.) Child tax credit

Deductions and credits for children under age 16 have doubled from $1,000 to $2,000. There is also a new tax credit for non-child dependents.

The Child and Dependent Care Credit, offering parents deductions for specific child care expenses, remains as-is.

5.) Estate tax exemption

Before the current changes, the 40% estate tax applied to the portion of an estate was valued at $5.6 million for the individual, and $11.2 million for a married couple. The new law will double these exemptions. Taxpayers filing as individuals will be granted an exemption of $11.2 million, while married couples will have a $22.4 million exemption.

6.) Education tax breaks

Original versions of the tax bill included plans for reducing or eliminating several education tax breaks, but none of these changes actually made it into the Tax Cuts and Jobs Acts.

The Lifetime Learning Credit and Student Loan Interest Deduction remain unchanged, and the exclusion for graduate school tuition waivers is also still in place.

However, the new tax bill has expanded the available use of funds in a 529 college savings plan to include other levels of education. You can now use money in those funds to pay for private school tuition or tutoring services for children in grades K-12.

7.) Deduction changes

There have been slight changes in the mortgage interest, charitable contributions, medical expense and State and Local Taxes (SALT) deductions.

The mortgage interest deduction was previously in place for any mortgage debt totaling up to $1 million. Under the new tax code, all mortgages taken after Dec. 15, 2017 and totaling up to $750,000, are qualified for this deduction. Also, the interest on a home equity loan can no longer be deducted.
The charitable contribution deduction has seen two minor changes. Taxpayers can now deduct as much as 60% of their income for charitable donations, up from the previous 50% limit. Also, donations made to universities in exchange for the privilege of purchasing tickets to athletic events can no longer be deducted as charitable expenses.

The cap for the medical expenses deduction has been cut from 10% of adjusted gross income (AGI) to 7.5% of AGI. Unlike nearly all other provisions in the bill, this change is retroactive to the 2017 tax year. Also, it will only apply through 2018.
The SALT deduction, which includes property and income tax, was originally slated for elimination, but was preserved with some changes. The total SALT deduction now cannot exceed $10,000.

8.) Corporate tax rate changes

The modified tax code lowers the corporate tax rate to a flat 21% on all profits. This simplifies taxes for most businesses while providing them with a significant cut as well.

9.) Disappearing deductions

Not every deduction survived the new tax law. Here are some that won’t be in effect for 2018 taxes:

  • Casualty and theft losses that were not caused by a federally declared disaster
  • Unreimbursed employee expenses
  • Tax preparation expenses
  • Miscellaneous deductions previously subject to the 2% AGI cap
  • Moving expenses
  • Reimbursement for employer-subsidized parking and transportation

10.) Repatriation of foreign assets

In an effort to bring some of the country’s largest companies’ profits back to American shores, the new tax law features a one-time repatriation rate of 15.5% on all cash and similar foreign-held assets, and 8% on non-liquid assets held overseas.

11.) Changes to the AMT exemption amount

The alternative minimum tax (AMT) exemption was permanently adjusted to account for inflation. These changes will be most dramatic in 2018 and are as follows:

  • For a single taxpayer or one filing as head of household, the AMT rate will increase from $54,300 to $70,300.
  • For a married couple filing jointly, the AMT rate will increase from $84,500 to $109,400.
  • For married couples filing separately, the AMT rate will increase from $42,250 to $54,700.

Your Turn: What do you think about the changes in the tax code? How would you do things differently? Share your thoughts with us in the comments!