IRS releases new 2018 withholding tables to reflect tax law changes

IRS sets the supplemental rate to 22%

This will probably be considered good news for many employees, particularly those that relocate into, out of or within the United States. The IRS has provided Notice 1036 which is an early release of the 2018 percentage method tables for income tax withholding. The tables are used by company payroll folks (and their outsourced partners that report to payroll) to determine how much tax to withhold from paychecks or how much to "gross-up" for taxable relocation expenses. So, the good news is that the IRS has set the supplemental rate to 22% for 2018, down from 25% previously.

According to this article, and the IRS, the new tables should result in the correct amount of tax withholding: ideally, not too much and not too little (and this applies similarly when the company is covering the tax for the employee on taxable relocation expenses).

For companies that help cover the taxes through "gross-up," for relocation expenses using the flat supplemental rate of 22%, they will now pay a little less than last year to help employees with each taxable relocation dollar. While that sounds good (I said it was good news), as you know already, the other major change from the Tax Reform that impacts mobility programs and will probably have a bigger net (negative) impact on the mobility program is the repeal of the deduction and exclusion for moving expenses (that is the bad news). That repeal now makes a number of often pretty large expenses taxable income that were previously excludable or deductible - think household goods and auto shipments, some specific final travel expenses and pet shipment costs. That means for many relocation scenarios, there will be a bigger chunk of taxable relocation expenses that companies will have to decide to "gross up" like they have done in the past with the previously taxable expenses. So far, most are choosing this direction, understanding that as a company, they now also have more money due to this same tax reform and they want to maintain a positive relocation experience for the employee.

We are currently in the process of helping companies calculate the impact of these tax changes on their overall mobility program, and helping them consider possible policy change implications as they try to balance the elements of cost and employee experience. We advise you to speak with your relocation provider to prepare you for a great year of talent mobility in 2018!

For more information, feel free to check out a previous blog entry:

Considering the new tax law's impact on global mobility programs in 2018 and our hot off the press article, What Does The New U.S. Tax Law Mean For Mobility?