The IRS has issued a draft version of new Publication 15-T (Federal Income Tax Withholding Methods) for the 2020 tax year that contains a first look at the new employer steps to figure federal income tax withholding.
Background. A heavily revised Form W-4 has been in the works from the IRS since the enactment of the Tax Cuts and Jobs Act (TCJA) in late-December 2017. Time constraints and some push back from the payroll community have delayed these changes until the 2020 tax year.
2020 draft Form W-4. On May 31, the IRS issued a 2020 draft version of Form W-4, with a second draft due in mid-to-late July, and a final version expected sometime in the fall of 2019. And because the way employers will figure federal income tax withholding is changing in 2020 to match the new Form W-4, the IRS created Publication 15-T.
New publication for employer withholding guidance. Publication 15-T is broken into the following three sections: (1) Employer Steps to Figure Federal Income Tax Withholding; (2) Percentage Method Tables for Federal Income Tax Withholding; and (3) Wage Bracket Tables for Federal Income Tax Withholding.
Section one. This section runs through the new five steps on the 2020 draft Form W-4. This section also contains a computation described in the Employer’s Withholding Worksheet on page three that will allow employers to figure withholding regardless of whether the employee provided a Form W-4 in an earlier year or will provide a new Form W-4 in 2020.
The worksheet notes that it illustrates what the 2020 procedure could look like by using the 2019 tax parameters (this is the same for the percentage and bracket tables below). It adds that there would be just one procedure for both the Form W-4 from before 2020 and new Forms W-4. Also, the formatting will change and some of the details may need to be modified slightly to conform to the final 2020 Form W-4.
Section two. This section contains the percentage method tables to figure out how much tax to withhold based on the employee’s adjusted annual wage amount and appropriate rate table determined by the employee’s filing status as shown on his/her Form W-4. The tables include a standard and higher withholding schedule.
The standard schedule is used if the Form W-4 is from before 2020, or if it is from 2020 or later and the box in Step 2 is not checked. The higher schedule is used if the Form W-4 is from 2020 or later and the box in Step 2 is checked.
Observation: The box in Step 2 of the 2020 draft Form W-4 is for employees who hold multiple jobs or where both spouses are working. By checking off the box, additional withholding will occur to reflect that status.
Section three. This section contains the bracket method tables. Under this method, an employer locates the proper table for the payroll period, uses the employee’s filing status as shown on his/her Form W-4, and the adjusted wage amount to find the amount of income tax to withhold.
These tables are divided with standard and higher withholding columns. Like the percentage tables, the standard column is if the Form W-4 is before 2020, or if it is from 2020 or later and the box in Step 2 is not checked; and the higher column is used if the Form W-4 is from 2020 or later and the box in Step 2 is checked.
Comments. There is a comment period until July 1 for the 2020 draft Form W-4. There is also a comment period until July 8 for the draft of new Publication 15-T. Comments for both the draft Form W-4 and draft Publication 15-T may be submitted via email to: [email protected].
“We really want your comments,” said Victor Aledo, IRS Tax Forms and Publications, during the June 6 IRS payroll industry telephone conference call. “We think we’ve done it right, we think we’ve got it covered, but there’s nothing that substitutes a wide group of professionals looking at this and giving us your comments,” he added.