New W-4 Aimed at Limiting Disruptions for Withholding, IRS Says

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By Jazlyn Williams and Jamie Rathjen

The 2018 Form W-4 retains the personal allowances worksheet used in the 2017 form because the 2018 federal income tax withholding tables already account for changes made under the tax code overhaul, an Internal Revenue Service official said March 1 during a monthly teleconference with payroll professionals.

The 2018 Form W-4, Employee’s Withholding Allowance Certificate, released Feb. 27 by the IRS, applies the same general approach to determining withholding allowances despite the elimination of personal exemptions under the new law (Pub. L. 115-97).

Notice 1036, Early Release Copies of the 2018 Percentage Method Tables for Income Tax Withholding, released Jan. 11 by the IRS, incorporates the higher standard deduction and suspended exemptions, said Scott Mezistrano, IRS representative for industry stakeholder engagement and outreach.

Agency officials considered existing claims when creating the forms in order to “keep the baseline the same,” Mezistrano said. The agency did not expect many employees to file new Forms W-4 for 2018, so the withholding tables were created to minimize disruption to withholding for employees who do not refile, he said.

A developing concern raised during the call was the increase in the amount to be added to wages for calculating income tax withholding for nonresident-alien employees. The amounts, which more than tripled for 2018 from 2017, may have resulted in negative pay for some employees, a participant said. The IRS said it would look into the issue.

In other topics discussed during the teleconference:

•The verification code program for Form W-2, Employee’s Wage and Tax Statement, shows that more employees were voluntarily entering the code on individual tax returns filed online this tax season, Mezistrano said.

The program, which began in 2016, involves a 16-character code used to authenticate employee data and match individual tax returns with the proper refund amount. Participating payroll service providers include the code in Box 9 of copies B and C of employees’ Form W-2.

About 58 million Forms W-2 issued this year included the code, Mezistrano said. About 40 percent of employees who received a W-2 with the code entered it when electronically filing their individual return, he said, up from 33 percent in 2017. Thus far in the filing season, 96 percent of the entered codes were valid, compared with 97 percent for 2017, he said.

•The IRS said it planned to address the release of Publication 1494, Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668-W(ACS), 668-W(c)(DO) and 668-W(ICS)), in April. The IRS response was to a teleconference participant who was asked if the agency still was issuing tax levies and whether they were to be handled in the same manner as before the 2017 tax code overhaul was passed.

To contact the reporters on this story: Jazlyn Williams in Washington at jwilliams@bloombergtax.com and Jamie Rathjen in Washington at jrathjen@bloombergtax.com. To contact the editor responsible for this story: Michael Baer at mbaer@bloombergtax.com.

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