Meet the 2019 W-4, same as the old W-4

Once the IRS backed off making changes to the W4, it quickly (as least for the IRS) released a second draft of the 2019 form. It certainly looks familiar, doesn’t it? And that’s a good thing.

Although this looks like the finished product, this is still a draft. Nevertheless, there are still some issues that are pending with it.

Withholding allowance amounts

The personal exemption amount has always doubled as the value of one withholding allowance amount for an annual pay period.

Problem: The Tax Cuts and Jobs Act suspended personal exemptions, at least through 2025.

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So how is the IRS going to set withholding allowances if there is no personal exemption amount?

Solution: It’s going to deem a personal exemption.

Can they do that? Yes, it can, and it already has.

The TCJA ushered in a new $500 unrefundable tax credit for qualifying dependent relatives, including elderly parents and children for whom a child tax credit isn’t allowed, whose gross income is less than the personal exemption amount. But if the exemption amount is zero, an individual’s gross income would have to be less than zero—a near impossibility.

In response to this TCJA glitch, the IRS says it will propose regulations that will deem a personal exemption amount of $4,150, adjusted for inflation.

More generally, the IRS issued Notice 2018-84, in which it noted that even though the personal exemption amount is $0, taxpayers are still allowed personal exemption deductions for purposes of other provisions of the tax code.

A back-of-the-envelope inflation adjustment yields a personal exemption amount of $4,200 for 2019.

Payroll in 2019

The Social Security Administration has announced that the Social Security taxable wage base will increase to $132,900, from $128,400—a 3.5% increase. The maximum Social Security tax you and your employees will pay next year is $8,239.80.

The IRS has yet to officially release the 401(k) pretax contribution amount, the overall 401(k) contribution amount, sometimes referred to as the Section 415 limitation and the monthly amount for qualified transportation fringe benefits. But these amounts are based on a formula, so we’ve done the math for you. Our estimates for these fringes are:

  • 401(k) plans: $19,000 maximum pretax contribution
  • 415 limitation: the lesser of $56,000 or 100% of compensation
  • Transportation fringes: $265 a month.