As previewed by the recent final Form W-4 regulations published in October (see earlier coverage), the IRS released a draft of Publication 15-T (Federal Income Tax Withholding Methods) on November 17. The publication provides a new computational method for employers who must continue to rely on pre-2020 Forms W-4 to determine the amount of
2020 Form W-4
Preamble to Final Regulations on the Mechanics of Income Tax Withholding Provide Transition Method for Pre-2020 Forms W-4
On October 6, the IRS published final regulations addressing changes made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) to how an employee instructs an employer to withhold income taxes based on the employee’s Form W-4 (Employee’s Withholding Certificate). These final regulations were issued only 8 months after the proposed regulations were published (see earlier coverage), which is considered warp-speed in IRS time. The Preamble to the final regulations provide a new method for employers who must continue to rely on pre-2020 Forms W-4 to determine the amount of federal income tax to withhold from employee’s wages.
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IRS Launches New Tax Withholding Estimator
Earlier this year, the IRS issued IR-2020-09, in which it announced the launch of a new and improved Tax Withholding Estimator. The Tax Withholding Estimator (the “Estimator”) is designed to help employees adjust their federal income tax withholdings by performing a “Paycheck Checkup.” The process also helps employees target the refund they want by adjusting the amount of federal income tax taken out of their pay. The Estimator incorporates changes from the redesigned Form W-4, Employee’s Withholding Certificate that employees can complete and give to their employers this year. To adjust for the amount of refund desired, the Estimator features a customized refund slider that the employee can use to select a refund from a range of amounts available. Based on the refund amount selected, the Estimator will give the employee instructions on how to fill out their Form W-4 or allow the employee to download a pre-filled Form W-4 based on the Estimator’s recommendations.
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IRS Releases Revised Draft 2020 Form W-4
Reminiscent of Kermit’s lament, “it’s not easy to be green,” it has not been easy to be the Form W-4 since personal exemptions were eliminated by tax reform in 2017. Two days after unveiling its new Tax Withholding Estimator, which is discussed in our post of August 6, 2019, today the IRS released “the second early release draft” of the 2020 Form W-4. This latest version of the 2020 Form W-4 eliminates “Allowance” from its name, so that it will now be known as the “Employee’s Withholding Certificate.” This revision to the name is consistent with the fact that employees may no longer claim withholding allowances. In addition, for employees claiming exemption from withholding, the new draft of the 2020 Form W-4 eliminates the line provided for claiming exemption, which had appeared on the earlier version of the 2020 draft as Line 4d. An employee claiming exemption must write “Exempt” under Line 4(c) and complete only Step 1 (Personal Information) and Step 5 (the employee’s signature) before submitting the form to the employer.
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