Guidance for income tax withholding

After deciding to delay changes to Form W-4 until 2020, the Internal Revenue Service released Notice 2018-92, which offers interim guidance on income tax withholding for 2019.  The IRS did release a draft version of a new Form W-4 earlier this year, however it was received with heavy criticism from accountants and professional tax preparers alike.

Groups such as the American Institute of CPAs raised concerns in relation to the draft version of the new W-4.  Concerns raised included: privacy, risk of underwithholding, and the issue of taxpayers predicting tax-items that have been known to be quite difficult to forecast.  Due to these criticisms, the IRS and Treasury Department have decided to postpone changes in the withholding form.

The notice released by the IRS also asks for comments from taxpayers on the new withholding rules and procedures.  Mitch Elbarki, CEO of Sigma Tax Pro states “…the IRS asking for public comments on new withholding procedures should signify that they plan on more regulations to withholding rules in relation to changes made by the Tax Cuts and Jobs Act.”  Elbarki also went on to clarify that “…this is significant in that further regulation means taxpayers and tax preparers need to stay tuned on developments until 2020, where form rules and procedures are expected to be solidified.”

In terms of its features, the new 2019 Form W-4 will be quite similar to the  2018 Form W-4. The new “withholding allowance” terminology in the tax law is also addressed in the new W-4.  Additionally, the new notice states that for 2019, the default rule when an employee does not provide a Form W-4, will continue to be single with zero withholding allowances.

The notice also allows taxpayers to take the qualified business income deduction into account.  This deduction, under section 199A, reduces withholding under section 3402(m) of the tax code. The IRS and the Treasury plan to update the regulations to specifically allow taxpayers’ use of the online withholding calculator instead of the worksheets to Form W-4.

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