IRS Released New Draft Form W-4

After pushback from taxpayers and tax professionals, the Internal Revenue Service (IRS) promised to revisit form W-4, Employee’s Withholding Allowance Certificate. The IRS issued a statement confirming that “the Treasury Department and the IRS will incorporate important changes into a new version of the Form W-4, Employee’s Withholding Allowance Certificate, for 2020.”

The new draft reflects changes under the Tax Cuts and Jobs Act (TCJA). In addition to the new tax rates, the TJCA made significant changes to itemized deductions normally claimed on a Schedule A and eliminated personal exemptions. As a result, current withholding schemes were not adequate for all taxpayers, causing the General Accounting Office (GAO) to warn taxpayers that unless they adjusted their withholding, they would owe taxes.

The concern eventually resulted in an announcement from the IRS that penalty relief might be available. In March of 2019, the IRS expanded the relief for those taxpayers making payments of at least 80% of the tax shown on the return for the 2018 taxable year. Despite the penalty relief, concerns about withholding remained.

The form includes calculations for taxpayers with more than one job and how to deal with additional income that might not be subject to withholding – items that tax professionals had expressed concern had not been adequately addressed after tax reform.

The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors. The revised form W-4 will not be effective until 2020. And changes are still on the way: The IRS expects to release a near-final draft of the 2020 Form W-4 in mid-to-late July before the final version of the form is released in November. That means that taxpayers should continue to use the current form W-4 throughout 2019.