01 February 2018 Federal tax levy exempt amounts to be updated to reflect new tax law On February 1, 2018, the IRS stated in a monthly payroll industry call that the federal tax levy exempt amounts reflected in Publication 1494 will be updated later this month to reflect changes under the Tax Cuts and Jobs Act (TCJA) that are effective January 1, 2018. In the meantime, the 2018 Publication 1494 currently reflects only the 2018 inflationary adjustments and not the loss of the personal allowance deduction under the TCJA. Employers may use the amounts shown in the 2018 Publication 1494 until the revised version is made available. When the IRS takes action to levy an employee's wages, the employer is sent Form 668-W(ICS) or Form 668-W(C)DO, Notice of Levy on Wages, Salary, and Other Income (or other levy form). Contained in the Form 668 levy form is a statement of exemptions and filing status to be completed by the employee. Using this statement of filing status and personal exemptions provided by the employee, the employer computes the portion of wages exempt from levy using Publication 1494, Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668-W(ACS), 668-W(c)(DO) and 668-W(ICS)). Under Section 6334(d)(2), the amount exempt from levy is computed as the annual value of the standard deduction plus personal allowances divided by the number of payroll periods the employee is paid. Because the value of the standard deduction and personal allowance is indexed each year for inflation, the IRS updates Publication 1494 each tax year. However, the annual inflation adjustment is not taken into account in computing the amount exempt from levy unless the employee submits another statement of filing status and personal exemptions for the new tax year. (IRS website; Internal Revenue Manual, 5.11.5.) Example: The employer received a federal tax levy in June 2015. In the same month, the employee completed and submitted to the employer a statement of filing status and personal exemptions showing married and one personal exemption. The employee did not provide an updated statement of filing status and personal exemptions for 2016 or 2017. The employer computes the amount exempt from levy for tax years 2015, 2016 and 2017 using the 2015 Publication 1494. Because of the suspension of the personal exemption deduction effective January 1, 2018, through December 31, 2025, a conforming amendment is made to Section 6334(d)(2) to reflect that the amount exempt from levy is computed as only the annual value of the standard deduction divided by the number of payroll periods the employee is paid. Because personal exemptions are not factored into the amount exempt from levy effective January 1, 2018, the IRS will need to clarify the extent that employees with active federal tax levies are required to submit a revised statement of filing status to their employers. For this purpose, the IRS would need to revise the employee statement contained in the Form 668-W to reflect only the standard deduction. IRS guidance is also needed as to the deadline for employee submission of the Form 668-W statement of filing status and the employer deadline for implementing changes in the amount exempt from levy. Document ID: 2018-0239 |
