Tax Guide Page 1 of 70 10:16 - 25-Jan-2018 …

1 Department of the Treasury Contents Internal Revenue Service What's New .. 1. Reminders .. 2. Publication 15. Cat. No. 10000W Calendar .. 8. (Circular E), Introduction .. 9. 1. Employer Identification Number (EIN) .. 11. Employer's 2. Who Are Employees? .. 11. 3. Family Employees .. 13. Tax Guide 4. Employee's Social Security Number (SSN) .. 14. 5. Wages and Other Compensation .. 15. For use in 2018 6. Tips .. 18. 7. Supplemental Wages .. 19. 8. Payroll Period .. 20. 9. Withholding From Employees' Wages .. 21. 10. Required Notice to Employees About the Earned Income Credit (EIC) .. 26. 11. Depositing Taxes .. 26. 12. Filing Form 941 or Form 944 .. 31. 13. Reporting Adjustments to Form 941 or Form 944 .. 33. 14. Federal Unemployment (FUTA) Tax .. 36. 15. Special Rules for Various Types of Services and Payments .. 38. 16. Third-Party Payer Arrangements.

2 43. 17. How To Use the Income Tax Withholding Tables .. 44. How To Get Tax Help .. 68. Index .. 70. Future Developments For the latest information about developments related to Pub. 15, such as legislation enacted after it was published, go to What's New 2018 federal income tax withholding. This publication includes the 2018 Percentage Method Tables and Wage Bracket Method Tables for Income Tax Withholding. The Get forms and other information faster and easier at: 2018 withholding tables incorporate changes to the indi- (English) ( ) vidual tax rates based on tax legislation enacted on De- (Espa ol) (Pусский). ( ). cember 22, 2017 ( 115-97). Employers should (Ti ngVi t). Jan 25, 2018. has a service agreement with the employer. A service available by the end of February. Encourage your employ- agreement is an agreement between the third-party payer ees to use the withholding calculator to determine if they and an employer in which the third-party payer (1) asserts should give you a new Form W-4 for 2018.

3 It is the employer of individuals performing services for the employer; (2) pays wages to the individuals that perform There are several ways to figure income tax withhold- services for the employer; and (3) assumes responsibility ing. The following methods of withholding are based on to withhold, report, and pay federal employment taxes for the information you get from your employees on Form the wages it pays to the individuals that perform services W-4. You must first reduce the wages you pay your em- for the employer. ployees by nontaxable wages before figuring the tax to A payer designated under section 3504 performs tax withhold on taxable wages. See section 5 and Pub. 15-B. duties under the service agreement using its own EIN. If for more information about nontaxable wages. See sec- the IRS designates a third-party payer under section tion 9 for more information on Form W-4.

4 3504, the designated payer and the employer are jointly li- able for the employment taxes and related tax duties for Adjustments aren't required when there will be which the third-party payer is designated. TIP more than the usual number of pay periods, for For more information on a payer designated under sec- example, 27 biweekly pay dates instead of 26. tion 3504, see Regulations section Certified professional employer organization Wage Bracket Method (CPEO). The Tax Increase Prevention Act of 2014 re- Under the wage bracket method, find the proper table (on quired the IRS to establish a voluntary certification pro- pages 48 67) for your payroll period and the employee's gram for professional employer organizations (PEOs). marital status as shown on his or her Form W-4. Then, PEOs handle various payroll administration and tax re- based on the number of withholding allowances claimed porting responsibilities for their business clients and are on the Form W-4 and the amount of taxable wages, find typically paid a fee based on payroll costs.

5 To become the amount of income tax to withhold. If your employee is and remain certified under the certification program, certi- claiming more than 10 withholding allowances, see below. fied professional employer organizations (CPEOs) must meet various requirements described in sections 3511 If you can't use the wage bracket tables because taxa- and 7705 and related published guidance. Certification as ble wages exceed the amount shown in the last bracket of a CPEO may affect the employment tax liabilities of both the table, use the percentage method of withholding de- the CPEO and its customers. A CPEO is generally treated scribed below. Be sure to reduce taxable wages by the as the employer of any individual who performs services amount of total withholding allowances in Table 5 before for a customer of the CPEO and is covered by a contract using the percentage method tables (pages 46 47).

6 Described in section 7705(e)(2) between the CPEO and the customer (CPEO contract), but only for wages and Adjusting wage bracket withholding for employees other compensation paid to the individual by the CPEO. claiming more than 10 withholding allowances. The However, with respect to certain employees covered by a wage bracket tables can be used if an employee claims CPEO contract, a customer may also be treated as an up to 10 allowances. More than 10 allowances may be employer of the employees and, consequently, may also claimed because of the special withholding allowance, ad- be liable for federal employment taxes imposed on wages ditional allowances for deductions and credits, and the and other compensation paid by the CPEO to such em- system itself. ployees. For more information, go to Adapt the tables to more than 10 allowances as fol- lows: 1.

7 Multiply the number of withholding allowances over 17. How To Use the Income 10 by the allowance value for the payroll period. The allowance values are in Table 5, later. Tax Withholding Tables 2. Subtract the result from the employee's taxable wa- Changes made under 115-97 will affect your ges. TIP employees' tax liability for 2018. The federal in- 3. On this amount, find and withhold the tax in the col- come tax withholding methods described in this umn for 10 allowances. section are the methods that you should use for 2018. The new withholding tables are designed to work with the This is a voluntary method. If you use the wage bracket Forms W-4 that your employees previously gave you. See tables, you may continue to withhold the amount in the 2018 federal income tax withholding and Exempt Form 10 column when your employee has more than 10 allow- W-4 under What's New for more information.

8 To help em- ances, using the method above. You can also use any ployees determine their withholding, the IRS is revising other method described next. the withholding tax calculator available at W4 App. The IRS anticipates that this calculator will be Percentage Method If you don't want to use the wage bracket tables on pages 48 67 to figure how much income tax to withhold, you can Page 44 Publication 15 (2018). use a percentage computation based on Table 5, later, To figure the income tax to withhold, you may reduce and the appropriate rate table. This method works for any the last digit of the wages to zero, or figure the wages to number of withholding allowances the employee claims the nearest dollar. You may also round the tax for the pay and any amount of wages. period to the nearest dollar. If rounding is used, it must be Use these steps to figure the income tax to withhold un- used consistently.

9 Withheld tax amounts should be roun- der the percentage method. ded to the nearest whole dollar by dropping amounts un- der 50 cents and increasing amounts from 50 to 99 cents 1. Multiply one withholding allowance for your payroll to the next dollar. For example, $ becomes $2 and period (see Table 5, later) by the number of allowan- $ becomes $3. This rounding meets the tolerances ces the employee claims. under section 3402(h)(4). 2. Subtract that amount from the employee's taxable wa- ges. Annual income tax withholding. Figure the income tax to withhold on annual wages under the Percentage 3. Determine the amount to withhold from the appropri- Method for an annual payroll period. Then prorate the tax ate table on pages 46 47. back to the payroll period. Table 5. Percentage Method 2018 Amount Example. A married person claims four withholding al- for One Withholding Allowance lowances.

10 She is paid $1,000 a week. Multiply the weekly wages by 52 weeks to figure the annual wage of $52,000. Payroll Period One Withholding Subtract $16,600 (the value of four withholding allowan- Allowance ces for 2018) for a balance of $35,400. Using Table 7(b). Weekly .. $ on page 47, $2,481 is withheld. Divide the annual tax by Biweekly .. 52. The weekly income tax to withhold is $ Semimonthly .. Monthly .. Quarterly .. 1, Alternative Methods of Income Tax Semiannually .. 2, Withholding Annually .. 4, Daily or miscellaneous (each day of the payroll Rather than the Wage Bracket Method or Percentage period) .. Method described in this section, you can use an alterna- tive method to withhold income tax. Pub. 15-A describes Example. An unmarried employee is paid $800 these alternative methods and contains: weekly. This employee has in effect a Form W-4 claiming Formula tables for percentage method withholding (for two withholding allowances.)