Today, the IRS published proposed 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 on his or her Form W-4 (Employee’s Withholding Certificate). The Form W-4 was redesigned for 2020 to reflect the TCJA changes to how income tax withholding from wages must be calculated.

The proposed regulations update existing regulations under section 3402 to reflect TCJA’s shift from relying on “withholding exemptions” to determine an employee’s income tax withholdings to the more complicated “withholding allowance” methodology that is putatively designed to neutralize the impact of other changes, such as the elimination of certain Schedule A adjustments to gross income for employees. Before settling on a final Form W-4 implementing these changes, the IRS received feedback on multiple draft form revisions that criticized the form as being complex and confusing. In addition, concerns were raised about the amount of personal information regarding an employee’s other jobs and earnings required to complete early drafts of the form. The 2020 Form W-4 addressed some of these criticisms, but still remains more complicated than the earlier form. Time will tell whether employees are able to easily adapt to the new form, or if errors in completing the form could result in employee underwithholding.

Select portions of the proposed regulations are discussed below. We will continue to update our readers on significant developments as the regulations are finalized. We discuss other effects of the TCJA elsewhere on our blog.
Continue Reading IRS Releases Proposed Regulations on the Mechanics of Income Tax Withholding

On May 31, the IRS released a draft 2020 Form W-4 that addresses some, but not all, of the privacy concerns that led the IRS to abandon the redesigned form for 2019.  According to an accompanying news release, the IRS anticipates releasing a near-final form in July to allow payroll processors and employers to begin work on programming updates to their systems.  Minor changes may be made based on comments to that draft form, but stakeholders are encouraged to submit their comments on the released draft by the end of June to ensure they can be taken into account.  Draft form instructions are expected to be released in the next few weeks for stakeholder comment.

The new draft directs filers to the IRS withholding calculator to determine how to complete the form without disclosing all of the personal information that would be disclosed on the form if it were fully completed.  It also requires less information to be shared with employers, even if the employee does not use the withholding calculator.  As with the 2019 draft, the 2020 draft eliminates the concept of withholding allowances to reflect the elimination of personal exemptions under tax reform.
Continue Reading Draft 2020 Form W-4 Addresses Some Privacy Concerns