For answers to your questions regarding tax withholding options, please call Kevin M. Sayed, J.D., LL.M., at 252-321-2020. The following materials were originally published by Rachel Fausnaught of PrimePay.com.
…And you thought tax filing season was over.
Just when you thought you understood the IRS’ changes to withholding from last year, there are more changes coming.
The IRS plans to release a new Form W-4 that will incorporate changes brought on by the new tax law. This is to help ensure that the amount held back for taxes in each paycheck is more accurate.
The overall goal of this change is so that taxpayers shouldn’t owe anything or be owed anything once tax time rolls around.
Here are the proposed changes.
Last summer, the IRS released a draft version of the new Form W-4, seeking feedback on it. Here are some of the changes.
As for marital status, employees would now have three marital status options:
- Single or married, filing separately.
- Married, filing jointly.
- Head of household.
Instead of claiming withholding allowances, the new Form W-4 gives taxpayers the option of providing annual dollar amounts for the following:
- Non-wage income (ex. interest).
- Deductions from income for the household (ex. itemized of other deductions).
- Income tax credits expected for the tax year.
- For employees who have multiple jobs, the total annual taxable wages for all lower paying jobs.
According to Ernst & Young, here are a few more things employers need to know.
Before implementing the income tax withholding calculation in Publication 15 or Publication 15-A, employers would need to adjust the employee’s pay period taxable wages according to the annual dollar amounts entered on lines 5 through 8 on the Form W-4 draft.
If an employee leaves those lines blank, federal income tax would be withheld according to the normal federal income tax withholding calculation. This means it will default two withholding allowances for single or married, filing separately and three withholding allowances for married, filing jointly or head of household.
The revised Form W-4 and the updated method of calculating federal income tax and withholding would apply to employees hired on and after Jan. 1, 2019. It would also apply to existing employees who change their Form W-4 at any time in 2019.
According to the IRS, another draft version of the new Form W-4 is expected by May 31. This will also seek public comment. Once the comments are reviewed, the plan is to post a second draft later in the summer, with the final Form W-4 version to be released by the end of the year.