After the IRS’s first attempt at revising Form W-4 to take into account the changes in Tax Cuts and Jobs Act was withdrawn after facing criticism the resulting form was too complex, the IRS has returned with another draft Form W-4. The new draft form will try again to take into account the substantial changes found in the Tax Cuts and Jobs Act in a concise form to help employees arrive at a proper amount of withholding. (“IRS, Treasury unveil proposed W-4 design for 2020,” IR-2019-98, IRS website, May 31, 2019)[1]

The new W-4 does away with the concept of withholding allowances entirely, since personal exemptions no longer a “central feature of the tax code” in the words of the news release.  Rather the form will attempt to provide information that the employer will use to arrive at a withholding number.

Due to changes in the law made by the Tax Cuts and Jobs Act (TCJA), the IRS in Notice 2018-14 provided an extended effective period for 2017 Forms W-4 that claimed exemption from income tax withholding for 2017 and allows employees to use the 2017 Form W-4 to claim exemption from withholding in 2018.  The notice also makes other changes to rules applicable to the use of Form W-4 to give the IRS time to release an updated Form W-4.

Specifically, the notice provides:

• Extends the effective period of Forms W-4, Employee's Withholding Allowance Certificate, furnished to claim exemption from income tax withholding until February 28, 2018, and permits employees to claim exemption from withholding for 2018 by temporarily using the 2017 Form W-4;
• Temporarily suspends the requirement that employees must furnish their employers new Forms W-4 within 10 days of changes in status that reduce the withholding allowances they are entitled to claim;
• Provides that the optional withholding rate on supplemental wage payments is 22 percent for 2018 through 2025; and
• Provides that, for 2018, withholding on periodic payments when no withholding certificate is in effect is based on treating the payee as a married individual claiming three withholding allowances.

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