IRS offers interim guidance for 2019 on income tax withholding

The Internal Revenue Service is providing some interim guidance on income tax withholding after deciding to postpone changes to the Form W-4 until 2020.

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In September, the IRS and the Treasury Department decided to delay the changes in the withholding form (see IRS pushes back major W-4 changes until 2020). The IRS released a draft version of a new Form W-4, "Employee’s Withholding Allowance Certificate," earlier this year in the wake of the Tax Cuts and Jobs Act, but it heard an outpouring of criticism from groups like the American Institute of CPAs and the National Association of Enrolled Agents, which said it raised privacy concerns, created a substantial risk of underwithholding, and would require taxpayers to forecast a number of tax-related items that are traditionally difficult to predict (see AICPA wants IRS and Treasury to simplify Form W-4 and NAEA sees lots of problems with new Form W-4).

The IRS released Notice 2018-92 on Monday, providing interim guidance for 2019 on the income tax withholding rules in the wake of the decision to delay the overhaul of the Form W-4 until 2020. The notice also asks for comments on some of the new withholding procedures. It indicates that the IRS is planning further regulations to update the withholding regulations to reflect the changes made by the Tax Cuts and Jobs Act.

In terms of specifics, the new notice announces that the 2019 Form W-4 will be similar to the 2018 Form W-4. It also addresses the new “withholding allowance” terminology in the tax law. The notice continues until April 30, 2019 the temporary suspension in an earlier Notice 2018-14 of the requirement to furnish new Forms W-4 within 10 days for changes resulting solely from the TCJA. In addition, the new notice says that, for 2019, the default rule when an employee fails to furnish a Form W-4 will continue to be single with zero withholding allowances

The notice allows taxpayers to take into account the qualified business income deduction under section 199A to reduce withholding under section 3402(m) of the tax code. It announces that the IRS and the Treasury Department intend to update the regulations under section 3402 to explicitly allow taxpayers to use the online withholding calculator or Publication 505, Tax Withholding and Estimated Tax, instead of the worksheets to Form W-4.

Monday's notice also asks for comments on alternative withholding methods under section 3402(h) and announces that the IRS and the Treasury Department intend to eliminate the combined income tax withholding and employee FICA tax withholding tables under Treas. Reg. § 31.3402(h)(4)-1(b).

The new notice modifies the notification requirements for the withholding compliance program. It also says that, for 2019, the withholding on annuities or similar periodic payments where no withholding certificate is in effect is based on treating the payee as a married individual who’s claiming three withholding allowances under section 3405(a)(4) of the tax code.