The Internal Revenue Service and Treasury Department issued proposed regulations Tuesday that update the federal income tax withholding rules to reflect changes made by the Tax Cuts and Jobs Act and other legislation.

The proposed regs are intended to accommodate the redesigned Form W-4, to be used starting in 2020, and the related tables and computational procedures in Publication 15-T, Federal Income Tax Withholding Methods, the IRS explained.

The plan provide rules on when employees must furnish a new Form W-4 for changed circumstances, update the regulations for the "lock-in letter program" and eliminate the combined income tax and FICA (Social Security and Medicare) tax withholding tables.

The proposed regs and related guidance do not require employees to furnish a new Form W-4 solely because of the redesign, and they permit employees to use the new IRS Tax Withholding Estimator to help them accurately fill out Form W-4.

Taxpayers may still use the worksheets in the instructions to Form W-4 and in Publication 505, Tax Withholding and Estimated Tax, to assist them in filling out the form correctly.

The proposed regulations provide flexibility in how employees who fail to furnish Forms W-4 should be treated.

"Starting in 2020, employers must treat new employees who fail to furnish a properly completed Form W-4 as single and withhold using the standard deduction and no other adjustments," the plan explains. "Before 2020, employers in this situation were required to withhold as if the employee was single and claiming zero allowances."

According to the IRS, employees who have a Form W-4 on file with their employer from years prior to 2020 generally will continue to have their withholding determined based on that form.

To assist with computation of income tax withholding, the redesigned Form W-4 no longer uses an employee's marital status and withholding allowances, which were tied to the value of the personal exemption.

Due to the sweeping tax overhaul enacted in 2017, employees can no longer claim personal exemptions. Instead, income tax withholding using the redesigned Form W-4 will generally be based on the employee's expected filing status and standard deduction for the year.

In addition, employees can choose to have itemized deductions, the child tax credit and other tax benefits reflected in their withholding for the year.

Instant Insights /

IRS floats updates to income tax withholding rules

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