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Final 2020 Federal Income Tax Withholding Instructions Released

Dec 26, 2019 5:08:39 PM

From Bloomberg 
December 26th, 2019

Long-awaited final instructions for federal income tax withholding in 2020, including expanded sections on alternative methods for employers, were released Dec. 24 by the Internal Revenue Service.

Publication 15-T, Federal Income Tax Withholding Methods, describes how to calculate withholding using the wage-bracket and percentage methods, and includes broader and updated tables. The publication includes five withholding worksheets and corresponding tables.

The publication discusses how to calculate the amount of federal income tax to withhold from the wages of nonresident aliens working in the U.S. for whom withholding is required. Nonresident alien students and business apprentices from India are not subject to this procedure.

Publication 15-T may be used in some cases to calculate income tax withholding on supplemental wages but it cannot be used if the 37% mandatory flat withholding rate or the 22% optional flat withholding rate are applied. Information about those two methods may be found in the 2020 Publication 15 (Circular E), Employer’s Tax Guide).

The 2020 percentage-method tables for automated systems were issued Nov. 26 on the IRS website. The tables had been included in Notice 1036 before their inclusion in Publication 15 (Circular E), Employer’s Tax Guide. The IRS discontinued publication of Notice 1036 as a stand-alone document.

The automated percentage method is the only method in Publication 15-T that is compatible both with 2020 Forms W-4 and Forms W-4 that were issued before 2020. The method also is the only one that requires annualizing wages. The publication’s two wage-bracket method tables and two manual percentage-method tables are year-specific and are to allow withholding on a pay-period basis.

The 65-page publication was finalized after three early release versions, with the last 24-page draft issued Nov. 4. The publication was needed after the income withholding form for employees was revised as part of the tax code overhaul (Pub. L. 115-97), which took effect Jan. 1, 2018. The 2020 Form W-4, Employee’s Withholding Certificate, is required to be completed by new hires and employees making adjustments starting Jan. 1, 2020.

Employers also may use a new online application, the Income Tax Withholding Assistant, to help calculate withholding using the 2020 Form W-4, as well as W-4s that were issued in 2019 and earlier. The IRS said it would not grant a compliance grace period for implementing the new W-4, so the calculator may help employers that do not have automated payroll systems that are compatible with the revised withholding methods.

The expanded Publication 15-T retained many of the topics discussed in drafts issued in November, August, and May, such as the sections “Alternative Methods for Figuring Withholding” and “Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members,” as well as withholding guidance regarding periodic payments of pensions and annuities and new employees who fail to submit Forms W-4.

Developments related to Publication 15-T, such as legislation enacted in 2020, may be found at Comments on Publication 15-T may be sent electronically to or in writing to Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, D.C. 20224.

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