New regulations proposed for post-2019 income tax withholding, with guidance for new W-4

Certain income tax law changes under the 2017 Tax Cuts and Jobs Act resulted in a need for new income tax withholding procedures and forms, including, effective for 2020, a redesigned Form W-4, “Employee’s Withholding Certificate.” On Feb. 11, 2020, the Department of the Treasury and the IRS issued new  proposed regulations under Internal Revenue Code (IRC) Sections 3401 and 3402 to provide guidance on post-2019 income tax withholding on employee wages. The IRS also issued a news release (IR-2020-28) on the proposed regulations.

Proposed Regulations

Per the IRS release:

- The newly designed Form W-4 must be used for new hires (and existing employees making certain adjustments) after 2019. (If an employer has its own version of a withholding form that is substantially similar to Form W-4, it is acceptable to use that instead.)

- The fact that the Form W-4 has been redesigned does not mandate that employees provide their employers with a replacement Form W-4, using the new form. An employee may continue to leave their existing pre-2020 Form W-4 in place, and under such circumstances, the employer is to continue to withhold using that form.

- The new Form W-4 bases the withholding amount on the employee’s expected filing status and standard deduction amount (one-half of the standard deduction amount if the employee is married), rather than, as prior to 2020, basing it on marital status and withholding allowances (which in turn were tied to the value of the no-longer-applicable personal exemption).

- The new Form W-4 allows employees to take spousal wages and wages from multiple jobs into account in determining employer withholding amounts, as well as itemized deductions, the child tax credit, and other tax benefits.

- In addition to an employee’s past entitlement to request that their employer withhold an additional flat amount from their wages to cover income from other sources, for this purpose an employee can now also request that their employer add the additional amount to their wages on their Form W-4, for use by the employer to withhold additional tax on the amount. 

- The IRS Tax Withholding Estimator may be used to determine the amounts to enter on the Form W-4.

- An employer whose new employee fails to furnish a properly completed Form W-4 must now withhold as if the employee is single and taking the standard deduction, with no other adjustments.

- Rules are provided as to when an employee must furnish a new Form W-4 to reflect changed circumstances.

Comments on the proposed regulations must be submitted by mid-April, and hopefully final regulations will be issued by the summer. Taxpayers may rely on the proposed regulations for wages paid on and after Jan. 1, 2020, until the rules are finalized.

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