The beginning of the year is always a good opportunity to review w-4 withholdings for employees. On Tuesday, November 27, 2018, the IRS issued guidance on withholding questions for 2019 in Notice 2018-92. It states that the rules will mostly continue to be in effect from 2018 through 2019, including a similar Form w-4. Minor adjustments incorporate the changes to tax liability and withholding resulting from the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. A new Form w-4 is expected to be released in 2020.
The Notice also announced that the IRS intends to develop further regulations for the TCA, specifically under Secs. 3401 and 3402, as amended by Section 11041 of the TCJA. These include:
Withholding allowances: This term has replaced the previously used “withholding exemptions.” This is due to the elimination of personal exemptions by the TCJA (at least until 2025).
Change in status: Any time that an employee’s circumstances result in a change in their withholding allowance (e.g., birth, death, marriage, etc.), that employee is required to notify the employer within ten (10) days. The Notice eliminates any requirement for the employee to notify the employer only if that change is the result of the TCJA. The requirement in such an event is that the employee provide a new Form w-4 to the employer on or before May 10, 2019.
Failure to provide Form w-4: Employees must provide a Form w-4 to their employer. In the event that they fail to do so, the Notice states that the employee may be treated as single, but entitled to the number of allowances computed pursuant to the Commissioner’s IRS Publication 15 (Circular E), Employer’s Tax Guide.
Estimates of Sec. 199A deduction: Much has been made of this significant component of the TCJA. With regard to employees, the Notice does allow a taxpayer to estimate the allowable Section 199A deduction in conjunction with calculating any additional Sec. 3402(m) allowance.
Withholding calculator: The IRS has provided an online withholding calculator and published further guidance in Publication 505, Tax Withholding and Estimated Tax. The Notice advises that the IRS will be working to enact regulations permitting the use of the calculator rather than relying on the tables provided with the Form w-4.
Combined withholding tables: The Notice states that these are marked for elimination for Federal Insurance Contributions Act (FICA) withholdings under Reg. Secs. 31.3402(h)(4)-1(b) due to complexity.
Written notice: Previously, an employer was required to send written notice to the IRS where an employee for whom the IRS had previously issued a letter locking in his or her maximum number of allowances left the employment (either voluntarily or involuntarily). That requirement has been suspended.
While the comment period remains open through January 25, 2019, the guidance affords employees and employers alike an opportunity for an annual review.