Publication 505 Is Issued for Calculating Withholding

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By Michael Trimarchi

Publication 505, Tax Withholding and Estimated Tax, was released April 1 by the Internal Revenue Service for use by employees in 2018 to determine how much income an employer should withhold for tax payments.

The publication had been referenced by the IRS as a key resource for employees to use when deciding on allowance amounts to apply on Form W-4, Employee’s Withholding Allowance Certificate.

Publication 505, which is updated annually, details two methods for determining withholding and estimated tax. Included in the guidance is how to calculate the amount of tax to withhold. Employees are to list their filing status and a number of withholding allowances on Form W-4; a dollar amount of withholding may not be specified.

Form W-4, used by employers in calculating withheld tax amounts, was updated to reflect changes under the new tax law (Pub. L. 115-97). Forms W-4 are completed by employees to inform employers of marital status and the number of withholding allowances to be claimed for federal income tax purposes. The amount of one withholding allowance on an annual basis increased to $4,150 in 2018 from $4,050 in 2017.

Additional updates to Forms W-4 for 2019 and its instructions are expected in August or September, an IRS official said March 12. The IRS is considering separating the form from the instructions. For 2018, the form and instructions were released as one document, as in previous years.

The agency also issued guidelines March 28 on how to use the IRS withholding calculator. The instructions help guide employees through the process, which culminates with a recommendation on whether to submit a new Form W-4 to employers. The instructions may be found at the IRS webpage Tax Reform Tax Tips.

To contact the reporter on this story: Michael Trimarchi in Washington at mtrimarchi@bloombergtax.com. To contact the editor responsible for this story: Michael Baer at mbaer@bloombergtax.com.

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