Due to taxpayers and tax professionals' pushback over the past, the Internal Revenue Service (IRS) has committed to revising the W-4 form, Employee’s Withholding Allowance Certificate. The IRS issued a statement affirming that "the Treasury Department and the IRS will incorporate key changes into a new version of the 2020 form W-4 model Employee’s Withholding Allowance Certificate". Today, the IRS released a W-4 draft form in 2020.
The new draft reflects the changes to the legislation on tax cuts and jobs act (TCJA). In accession to the new tax rates, the TJCA made significant changes to the deductions usually made in Schedule A and removed the personal exemptions. As a result, the current loyalty programs were not suitable for all taxpayers, which led the GAO (General Accounting Office) to inform them that if they had not adjusted their withholding tax, they would owe tax.
The concern eventually led to the announcement by the IRS of the possibility of a penalty waiver. In March 2019, the IRS granted grants to taxpayers making payments equal to at least 80% of the tax included in the 2018 return. Even if it's worth it the trouble, retention problems were maintained. That's why revisions to the W-4 remain a priority.
The drafted form is slightly larger than that of the previous W-4 module: it is an entire page (yes, there are still additional worksheets). The module includes calculations for taxpayers with more than one job and the management of extra income that can not be deducted at source - the issues of concern to tax practitioners have not been adequately addressed after the tax reform.
"The new W-4 module reflects important feedback from the wage community and other members of the tax community," said IRS Commissioner Chuck Rettig. "The primary objective of the new design is to ensure the simplicity, accuracy, and confidentiality of employees while reducing the burden on employers and wage processors."
The revised W-4 will not come into effect until 2020. And the changes are still underway: the IRS plans to release a near-final draft on the W-4 Form 2020 in mid-July, before the release final of the published module in November. This means that taxpayers should continue to use the current W-4 form in the year 2019.
Meanwhile, the IRS is informing taxpayers to take advantage of the IRS tax source calculator on the IRS website to check payroll.
Condition of submission: Line 3 indicates the status of the employee's tax filing return. The draft Form 2019 W-4 contains boxes showing if the filer is single or married, with a separate declaration, a conjugate deposit or a dwelling. Instead of requesting archived tasks using a different worksheet, the amount of the tax is automatically calculated based on the verified status: 2 if the individual or married files are separated and 3 if they are married with a joint declaration or are the head of the family.
Lines 5-8: Lines 5-8 are new and optional, but their completion will provide more accurate storage information. Line 5 is for non-salary income that is not subject to withholding tax. Line 6 is for detailed and other deductions (in addition to the standard deduction); Line 7 shows the applicable tax credits, and line 8 concerns paid work with a lower salary and will only be used if the employees hold more than one job or are married with an average income and both spouses work. Completing these lines requires information that employees cannot share. Instead, employees can use IRS Retention Calculator or IRS Publishing. 505, withholding tax and estimated tax to calculate the amounts to be included on line 7 (tax credits) or line 9 (additional deduction by check).
Storage, when the W-4 2019 module does not have records at rows 5 through 10, will be the sum of the 2019 storage tables in the IRS publication. 15 (Circular E), Guide for the Employer for the corresponding payment period, with:
If the values are shown on lines 5, 6, 7, 8 or 9, the employer will have to perform additional calculations at the source.
Forms from the previous year W-4: Employers must use W-4 data from the last year with the new retention method for 2019. Employers can do this by retaining the number of withholding allowance and retention tasks in the same way as the W-4 modules on the previous years, assuming lines 5, 6, 7 and 8 are equal to zero. The retention tables and formulas are adapted to take into account the last W-4 modules. Employees will be highly recommended but will not be required to submit a new W-4 form for 2019.
1. The withholding tax will now be calculated, taking into account the corporation tax payable instead of the number of divestments, which allows for greater accuracy. Taxpayers could calculate their retention based on the information provided in Form 1040, except for calculations for parentheses and deductions.
2. Employees are now required to list all their positions, ranking them from highest to lowest in relation to income level. Also, they should calculate the total taxable wages for all the jobs listed.
3. If an employee does not sign a W-4 as a new employee, he will have to calculate his deductions as if he were alone without any adjustment.
4. Four new lines (lines 5 to 8) have been introduced. Line 5 introduces non-wage income that is not subject to withholding tax. Line 6 contains detailed and other deductions. Line 7 refers to the applicable tax credits and line 8 to the total cost of low-cost jobs if employees hold more than one job.
5. The W-4 module instructions describe in detail how employees can make the data from previous modules compatible with the new forms.
