In the new draft Publication 15-T, Federal Income Tax Withholding Methods, the IRS explains the revised employer instructions for withholding federal income tax starting in 2020. These updated instructions are necessary due to the significant modification of the 2020 Form W-4, Employee's Withholding Allowance Certificate. (See the draft 2020 Form W-4.)

Draft step-by-step instructions

Every Form W-4 that employers receive in 2020 from employees should show a completed Step 1 (name, address, Social Security Number and filing status) and a dated signature on Step 5. Employees complete Steps 2, 3 and 4 only if they apply to their tax situation.

If an employee's Form W-4 reflects information only in Steps 1 and 5, the employer computes federal income tax based only on the filing status claimed in Step 1 and the taxable wages paid.

Adjustments to federal income tax withholding are necessary only if information is provided on Form W-4 in Steps 1 through 4 as follows (for images, see attached PDF file).

• Step 2. If the box on line 2 is checked, federal income tax withholding is computed as though the employee is single with no adjustments when using the percentage method of wage-bracket withholding methods.
• Step 3. The amount shown as the total adjustment on Step 3 (see the red arrow to the right) is subtracted from taxable gross wages before using the percentage or wage-bracket withholding method. The total amount shown on line 3 need not be the result of adding together the amounts shown for qualifying children and the number of other dependents; however, if amounts appear on these lines but there is no total claimed for Step 3, the employer should consider asking the employee to enter a total amount for Step 3. (It is not clear what amount the employer uses in the absence of a total amount claimed for Step 3.)
• Step 4, lines 4a and 4b. The amount shown on line 4a is added to taxable wages and the amount shown on 4b is subtracted from taxable wages before using the percentage or wage-bracket withholding method.
• Step 4, line 4c. The amount of federal income tax computed by the employer is increased by the amount shown on line 4c.
• Step 4, line 4d. If line d is checked, no federal income tax is withheld unless the employee is paid supplemental wages more than $1 million for the year, in which case a flat federal income tax rate of 37% applies to those supplemental wages over $1 million in the year. As in the past, employees claiming exempt on Step 4, line 4d must submit a new Form W-4 to their employer by February 15 of the following year.

Comment period ends July 8, 2019

Employers can submit comments concerning these draft withholding instructions to WI.W4.Comments@IRS.gov. Comments must be submitted by July 8, 2019.

———————————————

———————————————
ATTACHMENT

EY Payroll News Flash