Winter is coming. Are your withholding systems ready?
Nope, this isn’t about inclement weather policies or “Game of Thrones.” It’s about the IRS again signaling its intentions to significantly disrupt the income tax withholding process.
This was supposed to happen with 2019 withholding, but the first draft of the 2019 W-4 bombed so spectacularly that the IRS was forced to retreat. Apparently, that retreat was only a tactical maneuver. The IRS says again that withholding for 2020 will be different.
Preliminary withholding procedures for 2019
The IRS’ 2019 withholding notice seemed to change a lot of things. On closer inspection, it changes very little, at least for now. For example, it says that it will continue to use the phrase “withholding allowances” on the W-4 and in Circular E. Likewise, if you don’t have a valid W-4 from an employee, you must continue to withhold as if the employee was single, claiming zero withholding allowances.
As for things that will change for your 2019 withholding:
- Last year, the IRS didn’t require employees to refile their W-4s if the only reason they needed to do so was due to changes made by the Tax Cuts and Jobs Act. The IRS is continuing this relief through April 30. Upshot: Employees have until May 10, 2019, to provide you with updated W-4s
- Employees who need to refile their W-4s for any other reason must still do so within 10 days
- Employees may take a withholding allowance based on their eligibility for the § 199A 20% deduction for qualified business income (remember, it’s not your job to explain this deduction to employees or to help them calculate it)
- You no longer need to notify the IRS if an employee who is the subject of a lock-in letter leaves your employment
- The IRS is scrapping the alternative withholding method that combines income and FICA withholding because it’s too hard and you have to report those amounts separately on Forms 941 and W-2, anyway.
What’s ahead for 2020
In all likelihood, the IRS will try to float something like its first draft of the 2019 W-4 for 2020, even though that draft sank under the weight of its own complexity, because it remains fixated on accurate W-4s.
The problem is that the IRS is swimming against the tide. Employees purposefully fill out their W-4s inaccurately, so that they’re overwithheld. I can tell you this is true—when I worked at a major legal publishing company, everyone had access to the best tax analysts in the country. They never asked us, and when we said they were making interest-free loans to the government, they didn’t care. They wanted a big tax refund and they knew that overwithholding would get them one.
To further its accuracy goal, the IRS says it will issue regulations that will allow employees to use the withholding calculator to determine the correct number of withholding allowances. But we learned how this turned out when we tried it.
The IRS also says it wants the income tax withholding process to be more transparent to employees. Are employees really yearning for transparency in their withholding? Probably not. Employees don’t think much about withholding and that’s by design—you can’t miss what you never knew you had.
Care to comment?
The IRS is just getting started on changes it foresees in 2020. If you care to comment on that or on the 2019 withholding notice, you have until Jan. 25, 2019, to do so. Comments may be submitted electronically to: Notice.firstname.lastname@example.org. Please include “Notice 2018-92” in the subject line of your email. Remember, be nice; your comments are open for public inspection.
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A word about tax deposits on December 5
Dec. 5 has been declared a national day of mourning for the late President George H.W. Bush. The IRS has announced that tax deposits that are due on Dec. 5 may be submitted on Thursday, Dec. 6.