The IRS announced that as a result of feedback from payroll and tax professionals, extensive changes it had planned to make to the 2019 Form W-4, Employee's Withholding Allowance Certificate, will be postponed until 2020. The 2019 version of Form W-4, to be released in the coming weeks, will be similar to the 2018 form.

As previously reported (EY Payroll Newsflash, Vol. 19, 099, June 8, 2018), earlier this year the IRS published a draft of the 2019 Form W-4 and instructions that would better incorporate the personal income tax changes under the Tax Cuts and jobs Act that took effect January 1, 2018.

As proposed, in lieu of claiming withholding allowances, the draft Form W-4 would have given employees the option of providing annual dollar amounts for:

(1) Additional nonwage income such as interest and dividends

(2) Deductions from income for the household, such as itemized or other deductions

(3) Income tax credits expected for the tax year

(4) For employees with multiple jobs, total annual taxable wages for all lower paying jobs in the employee's household

Employers would have been required to adjust the employee's pay period taxable wages according to the annual dollar amounts entered on lines 5 through 8 of the proposed

Form W-4.

Ernst & Young LLP insights

This IRS announcement brings welcome relief to employers and payroll software providers that faced making extensive changes to the federal income tax withholding calculation for 2019.

In preparation for planned changes expected to the Form W-4 in 2020, the IRS says it will continue to work closely with the payroll and tax communities.

The proposed Form W-4 would be far more complex and employees could struggle to understand how to complete it correctly. Accordingly, employers should consider the extent they would provide Form W-4 training or other assistance to their employees.

Finally, the draft Form W-4 would likely not conform for state income tax withholding purposes. Accordingly, states that currently use the Form W-4 could require that a unique state form be used.

For more information on the Tax Cuts and Jobs Act of 2017 and its impact on employers and the 2018 Form W-4, download our special report here.

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EY Payroll News Flash