IRS issues guidance on withholding for 2019

By Sally P. Schreiber, J.D.

The IRS on Tuesday said that the withholding rules in effect for 2018 will remain in effect for 2019. In September, the IRS announced that the 2019 version of Form W-4, Employee’s Withholding Allowance Certificate, will be similar to the 2018 version. The IRS issued a draft W-4 form and instructions in June but postponed implementing them after receiving many critical comments on the new form. The IRS also announced that it will continue to work with stakeholders in developing the new form, which will be released in 2020.

In the meantime, the IRS will issue a 2019 Form W-4 that is similar to the one issued in 2018, which incorporated the changes to employee tax liability and withholding introduced in the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97.

In Notice 2018-92, the IRS provided interim guidance on the withholding rules that apply until the new form is issued. The IRS also announced in the notice that it intends to develop regulations under Secs. 3401 and 3402, as amended by Section 11041 of the TCJA.

Withholding allowances: Section 3 of the notice discusses “withholding allowances,” the term that has replaced “withholding exemptions” now that the TCJA has eliminated personal exemptions from 2018 through 2025.

Change in status: Section 4 addresses the requirement to provide an employer with a new Form W-4 when an employee has had a change in status that would affect the employee’s withholding allowance. If those changes are due solely to the effect of the TCJA, the employee will not have to meet the requirement that the employee notify the employer of changes in status within 10 days. Instead, the employee is generally required to furnish the employer a new Form W-4 by May 10, 2019. This rule will be in effect until April 30, 2019. If the changes in status are not due to the new tax law, however, Section 4 still requires employees to file a new form notifying the employer of the change within 10 days.

Failure to furnish Form W-4: Section 5 addresses employees who fail to provide a Form W-4. Those employees may be treated as single but entitled to the number of allowances provided in accordance with computational procedures set forth by the commissioner in IRS Publication 15 (Circular E), Employer’s Tax Guide.

Estimates of Sec. 199A deduction: Section 6 provides that taxpayers may include an estimate of the deduction allowed under Sec. 199A in determining the additional withholding allowance under Sec. 3402(m) to which they are entitled.

Withholding calculator: Section 7 permits taxpayers to use the online withholding calculator and IRS Publication 505, Tax Withholding and Estimated Tax, to determine the correct withholding. The notice says the IRS intends to amend the regulations to explicitly allow the use of the withholding calculator in lieu of completing the schedules included with Form W-4.

Combined withholding tables: Section 8 announces that the IRS intends to eliminate the combined withholding tables for income tax and Federal Insurance Contributions Act tax withholding under Regs. Sec. 31.3402(h)(4)-1(b) because of its complexity, especially since employers are still required to report and pay over separate amounts.

Written notice: Section 9 suspends the requirement that an employer send a written notice to the IRS that an employee, for whom the IRS has issued an employer a notice prescribing a maximum number of withholding allowances an employee may claim (a lock-in letter), is no longer employed by the employer.

The IRS is requesting comments on the notice by Jan. 25, 2019.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.

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