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Earlier today, the IRS issued Notice 1036, which updates the tax tables and withholding rates for 2018 to reflect the new marginal income tax rates implemented under the Tax Cuts and Jobs Act.
The flat rates that apply to supplemental payments are updated as follows:
As under prior rules, for employees who have received $1 million or less in supplemental payments, the company can choose to withhold at either the flat rate or the W-4 rate (which also changes as a result of Notice 1036). Where employees have received more than $1 million in supplemental payments, this choice is not available; the company must withhold at the specified flat rate (now 37%).
While companies have until February 15 to implement the new rate tables, the IRS encourages companies to implement them as soon as possible and I expect that many companies will switch to the new flat rates immediately. Where shares are being withheld to cover taxes, withholding at greater than 37% could now trigger liability accounting.
P.S. Thanks to Andrew Schwartz of Computershare for alerting me to the IRS's announcement.
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