The Tax Cuts and Jobs Act (TCJA) made sweeping changes to the individual income tax rules, some of which directly affect federal income tax withholding and the Form W-4, Employee's Withholding Allowance Certificate. In particular, effective January 1, 2018 through December 31, 2025, individual income tax rates are lowered, the standard deduction is increased, and many deductions, including personal allowances, are eliminated.

In consideration of the late enactment of the TCJA, Congress gave the IRS until January 1, 2019 to implement the loss of the personal allowances into the income tax withholding calculation. (TCJA Section 11041) This, coupled with an understandable delay in the issuance of the 2018 Form W-4 has raised numerous questions from employers and their employees.

To assist employers during this period of uncertainty, following are answers to the top ten questions raised by participants of our February 20, 2018 webcast, Tax Cuts and Jobs Act-a roadmap for employers.

Form W-4 frequently asked questions

Q1. After January 1, 2018, can employees continue to claim personal allowances on Form W-4?

The IRS explained in its Frequently Asked Questions that the 2018 income tax withholding tables are designed to work with employees' current Forms W-4, Employee's Withholding Allowance Certificate. The 2018 income tax withholding tables continue to provide for personal allowances with values higher than they were in 2017.

Q2. Does the one year delay in implementing the loss of the personal allowance deduction into the income tax withholding calculation have any effect on the individual taxpayer's federal income tax liability for 2018?

No. The loss of the personal allowance deduction will apply to individual taxpayers effective with the 2018 federal income tax return.

For tax year 2018, the IRS warns that some employees with more complex tax situations could face the possibility of being under-withheld. For example, employees who itemize their deductions, couples with multiple jobs or individuals with more than one job a year are encouraged to review their tax situations and determine if an adjustment to their Form W-4 is necessary. The IRS encourages workers, particularly those with more than one income in their household, to check their 2018 withholding.

Q3.  When will the IRS update the Form W-4 worksheet and withholding calculator that assists taxpayers in completing the 2018 Form W-4?

The IRS has not committed to a release date. However, Ernst & Young LLP has services to assist your workforce. See page 5 for more information.

Q4. Are all employees required to submit a revised Form W-4 for 2018?

Although the IRS will eventually modify the Form W-4 to reflect the suspension of the personal allowance deduction, there is no requirement at this time that all employees submit a new Form W-4. However, keep in mind the prior rules pertaining to employees who claim exemption from withholding continues to apply. See Q7.

Q5. Are we required to send notices or communications to employees about the income tax changes or the Form W-4?

There is no requirement at this time that employers send notices to employees about the changes in the rules governing individual income tax and their potential impact on the Form W-4. However, because employees may be unaware of the need to check their withholding, informing them generally of their need to check their withholding could prevent misunderstandings should employees discover they are underwithheld when filing their 2018 federal income tax returns.

Of the 2,779 who responded to our February 20 webcast polling question, 79% indicated that they have, or plan to send a communication to employees reminding them to check their personal allowances on Form W-4.

Q6. Our employees are asking us how to complete the Form W-4. How much assistance should we provide?

For more than just general information, such as reminding employees to check their withholding, it is best that employers have tax professionals on hand to provide specific tax advice to their employees. For information about the services Ernst & Young LLP provides, see page 5.

Q7. Are employees who claimed exemption from federal income tax withholding in 2018 required to submit a new Form W-4 for 2018?

Yes, they are.

Under Treas. Reg. Section 31.3402(f)(4)-2(c), Forms W-4 furnished to the employer claiming exemption from withholding for a taxable year are effective up to and including February 15 of the following year. If an employee claiming exemption from withholding has not submitted a new Form W-4 for the current tax year by February 16, the employer is instructed to begin withholding based on the last Form W-4 where the employee didn't claim an exemption from withholding or, if one wasn't furnished, withhold at single with zero withholding allowances.

In consideration of the IRS delay in publishing the 2018 Form W-4 the following procedures apply for employees who claimed exemption from withholding in 2017:

— Employees have an extended deadline of February 28, 2018, to submit a new

— Form W-4 for 2018.

— Employers may continue to use a 2017 Form W-4 claiming exemption from withholding through February 28, 2018.

— Up to 30 days after the 2018 Form W-4 is released, the 2017 Form W-4 may be temporarily used for claiming exemption from withholding in 2018 by (1) striking "2017" on line 7 of the Form W-4 and entering "Exempt 2018" in its place, (2) signing the form, and (3) entering the date in 2018 that the form was signed.

The employer may alternatively establish a procedure whereby employees can certify both that they incurred no federal income tax liability for 2017 and they anticipate they will have no federal income tax liability for 2018 and thus are claiming exemption from withholding for 2018.

Employers with electronic Form W-4 systems can make alterations that conform with the above.

— Employees who claim exemption from withholding for 2018 using the 2017 Form W-4 under these special rules do not need to furnish a 2018 Form W-4 after the 2018 Form W-4 is released. (Notice 2018-14.)

Q8. Are employees with a change in status required to submit a new Form W-4?

IRC Section 3402(f)(2)(B) and Treas. Reg. Section 31.3402(f)(2)-1(b) provide that if a change in status occurs that reduces the number of withholding allowances to which employees are entitled, employees must, within 10 days, furnish the employer with a new Form W-4 claiming the proper number of withholding allowances.

Employees experiencing a change in status that causes a reduction in the number of withholding allowances for tax year 2018 are not required to furnish employers new withholding allowance certificates until 30 days after the 2018 Form W-4 is released.

Employees who have a reduction in the number of withholding allowances solely due to changes under the TCJA are not required to furnish employers new withholding allowance certificates during 2018. Employees who choose to update their withholding may use the 2017 Form W-4 to report changes in withholding allowances until 30 days after the 2018 Form W-4 is released. (Notice 2018-14.)

Q9. Some employees want to change their withholding but there is no 2018 Form W-4 available. What should they do?

Employees may temporarily use the 2017 Form W-4 for submitting withholding adjustments for 2018 until 30 days after the 2018 Form W-4 is released. Employees using the 2017 Form W-4 under this guidance are not required to resubmit their changes once the 2018 Form W-4 is made available.

Except for employees claiming exemption from withholding (see Q7), the IRS does not instruct that the preprinted tax year on the Form W-4 be changed from 2017 to 2018. The date entered on the Form W-4 at the time of signing demonstrates that the withholding change is requested for tax year 2018. (Notice 2018-14.)

Q10. We have hired several new employees in 2018 but there is no 2018 Form W-4 available. What should new hires do?

New hires may continue to claim allowances by using the 2017 Form W-4 until 30 days after the 2018 Form W-4 is released. Employees who furnish new Forms W-4 using a 2017 Form W-4 do not need to furnish another Form W-4 after the 2018 Form W-4 is released. (Notice 2018-14.)

How Ernst & Young LLP can help employees navigate the new tax law

EY Personal Tax Reform Tool

— Excel-based tax computation calculator for employees to conduct tax reform modeling on their own

— Allows user to adjust filing status, number of dependents, income/deductions, and their resident state to determine the impact of the new tax law changes

— Provides a side-by-side comparison from current tax law to TCJA

EY Tax Desk

— Dedicated team of EFS professionals who provide tax education and guidance to help employees understand the impact of tax reform

— Typical questions answered include the new standard deduction, mortgage interest limitations, Roth IRA conversions and state and local tax deductions, among many other items

Tax reform webinars

— New webinar topics available covering the TCJA, its potential tax implications, and the steps an individual can take to adjust his/her tax strategy and financial plan in the wake of the new law

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