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Proposed regs. would update income tax withholding rules for TCJA changes

By Sally P. Schreiber, J.D.

Please note: This item is from our archives and was published in 2020. It is provided for historical reference. The content may be out of date and links may no longer function.

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The IRS proposed new regulations (REG-132741-17) for withholding on individuals’ wages to reflect the statutory changes in the law known as the Tax Cuts and Jobs Act, P.L. 115-97, including the elimination of the personal exemption. The proposed rules and the new Form W-4, Employee’s Withholding Certificate (formerly titled Employee’s Withholding Allowance Certificate)no longer use an employee’s marital status and withholding allowances, which were tied to the value of the personal exemption. According to the IRS, income tax withholding using the redesigned Form W-4 will generally be based on the employee’s expected filing status (married, single, or head of household), which will generally result in the basic standard deduction corresponding to the employee’s anticipated filing status on his or her income tax return being taken into account in determining the amount of tax withheld from the employee’s pay.

The proposed rules do not require existing employees to complete a new Form W-4 solely due to the changes to Form W-4. However, employees continue to be required to provide a new W-4 for certain changes in their circumstances, and the proposed regulations provide rules on when employees must furnish a new Form W-4 for changed circumstances.

The new Form W-4 also streamlines the procedures for employees who work multiple jobs and for employees with working spouses. The regulations provide detailed rules on when an employee can select “married filing jointly” on a Form W-4 and disallow that status for individuals who are legally separated from their spouse.

The proposed regulations also address a variety of other income tax withholding issues. For example, the proposed regulations provide flexibility in how employees who fail to furnish Forms W-4 should be treated. Starting in 2020, employers must treat new employees who fail to furnish a properly completed Form W-4 as single.

The new regulations provide for either a percentage method of withholding or a wage bracket method of withholding, and tables for both of these methods are contained in IRS Publication 15-T, Federal Income Tax Withholding Methods, which was released Dec. 24, 2019. They also update the regulations for the lock-in letter program and eliminate the combined income tax and Federal Insurance Contributions Act withholding tables.