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IRS Introduces Major Alterations to Form W-4 for 2019

Jun 7, 2018 4:30:00 PM

In June of 2018, the Internal Revenue Service released a draft of an updated Form W-4, for 2019. Within this update are major changes that many see forcing serious changes to current payroll systems as the changes will require payroll providers to maintain both 2018 and 2019 payroll forms at once.

Form W-4 is used by employees to signify material status and their withholding allowances for federal income tax. Similarly, states use federal Form W-4 for state withholding purposes. The Tax Cuts and Jobs Act (TCJA) brought several changes to Form W-4 in 2018, but employees were not required to provide an updated W-4 for the year as it was deemed unnecessary (If you want to know more about the TCJA, you can check out our blog series on the subject HERE). Unlike the 2018 changes, the IRS has “strongly recommended” that employees complete a new Form W-4 for 2019.

All of that said, what changes have been made?

 

Total number of allowances

The more allowances an employee claims, the less tax will be withheld from each of their paychecks. Allowances are determined by an employee’s filing status, number of jobs, and number of dependents. The new 2019 version has REMOVED this line entirely.

 

Marital Status

In addition to the “Single” and “Married filing jointly” tables, a new table labelled “Head of Household” is being added.

 

Additions to Income

This line asks employees to include estimated nonwage income that is not subject to withholding. These nonwages include income such as interest or dividends. Currently, an employee with a large amount of nonwage income had to convert the amount into equal per-payroll amounts to be withheld. The 2019 W-4 has this section at full-year estimates.

 

Itemized and Other Deductions

Similar to the line above, this line in current W-4’s asks an employee to add estimated subtractions to income based on expected deductions, such as state/local taxes, mortgage interest, charitable contributions, and more. 2019 W-4’s will also have this line at full-year estimates, prompting payroll systems change.

 

Tax Credits

This line currently has employees entering the full-year amount of any tax credits, such as the Child Tax Credit, that they expect to qualify for. Employees are now able to use this credits as additional withholding allowances. The 2019 Form W-4, these full-year tax credits will be directly entered into payroll systems. This allows employees to both under and over-withhold these tax credits resulting in changes to an employee’s regular paycheck.

 

Additional House Income due to Multiple Jobs

If an employee has more than one job, this line would be where they enter any full-year income for a second job or the income of a spouse. For any homes with multiple incomes, these additional wages only apply to the highest paying job. Homes with more than two incomes have special instructions to follow. Employers will use the full-year amounts for withholding calculations in order to determine an employee’s tax bracket and tax rates.

 

What these Changes Mean

Any employees who have not filled out a new Form W-4 for tax year 2018 could have outdated withholding allowances based on the previous iteration. This is especially true with regards to personal exemptions as the new Form W-4 eliminates them entirely. The TCJA has also impacted tax reductions, or additional charges, for 2018. All of these changes will and are affecting how companies around the country process payroll, with significant changes having to be made to current systems. The IRS posted a new W-4 calculator to their website in February of 2018 and strongly encouraged employees to use the calculator themselves to see what changes they can expect.

Employers should be doing their research now in order to prepare for this new wave of changes for the upcoming tax year. Forms and systems will have to be updated, and employees should be reminded to use the IRS’s new calculator so they aren’t taken by surprise when these changes go live.

 

If you want to read up about these changes yourself, or try out the new calculator, you can do so at the IRS’s website HERE.

 

 

 

 

Bibliography

ADP . (2018, June). ADP Research Institute . Retrieved from ADP: https://www.adp.com/tools-and-resources/adp-research-institute/insights/insight-item-detail.aspx?id=BB8C678F-643C-4279-9DF7-6CC040804917

Internal Revenue Service. (2018, February). IRS News Releases. Retrieved from IRS.gov: https://www.irs.gov/newsroom/updated-withholding-calculator-form-w-4-released-calculator-helps-taxpayers-review-withholding-following-new-tax-law

 

 

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