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.
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.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Press ReleaseSolarz joins CohnReznick as National Tax Managing DirectorCohnReznick LLP, one of the leading advisory, assurance, and tax firms in the United States, today announced that Alan H. Solarz, JD, CPA, has joined the firm as Managing Director in its rapidly growing National Tax practice. Based in New York, Solarz has more than 35 years of experience as a transactional tax lawyer and tax advisor.
InsightIRS provides additional ERC guidance on calculations for newer businesses, majority owners’ wages, PPP loan forgiveness as gross receipts, and moreDana FriedNotice 2021-49 and Revenue Procedure 2021-33 cover majority owners’ wages as Qualified Wages; PPP forgiveness amounts and the gross receipts test; and more.
InsightIRS provides guidance on changing method of accounting for depreciation of certain residential rental propertyRichard Shevak, Travis Butler, Timothy McMillanRevenue Procedures 2021-28 and 2021-29 explain how electing RPTOBs and BBA partnerships can change their accounting methods for certain property’s depreciation.
InsightSupreme Court decision on Affordable Care Act cuts possibility of tax refundsPatrick Duffany, Brian Newman, Dan WiseThe Supreme Court’s ruling in California v. Texas means that taxpayers should not expect refunds related to any protective claims filed. Read more.
InsightCOBRA premium assistance, employer tax credit available for 2021 Q2 and Q3Dana FriedRead key details of the American Rescue Plan Act’s Q2-Q3 COBRA premium assistance and employer tax credit: eligibility, taxation, how to claim the credit, and more.