2019 Tax Withholding Changes on the Way, IRS Says

A draft Form W-4 cuts the current W-4 in half

Stephen Miller, CEBS By Stephen Miller, CEBS August 3, 2018
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As employees estimate how much income tax they'll owe next April under the tax changes that took effect this year, and with a revised Form W-4 for 2019 on the way, the Government Accountability Office (GAO) is monitoring IRS steps to help employees set an appropriate amount of income tax withholding through payroll deductions.

Earlier this year, IRS officials updated their withholding tables and issued a new Form W-4 for 2018 after passage of the Tax Cuts and Jobs Act last December. The act reduced employees' income tax rates, adjusted tax brackets and eliminated personal exemptions, among other changes.

Withholding Too Much or Too Little

The Treasury Department, which includes the IRS, "may make more significant changes to withholding in 2019 given its new discretion over the withholding structure provided in the Tax Cuts and Jobs Act," the GAO noted in a July report.

"It's important every year for people to review if they're having the right amount of tax withheld from their paychecks," acting IRS Commissioner David Kautter said in April. "This year, it's even more urgent for people to review their situation following the new tax-law changes."

"Many taxpayers have preferences about the tax refund that they will receive or the balance they will have to pay when they file their tax returns," the GAO report stated. "The tax withholding tables that Treasury and IRS update each year are an important tool that both employers and employees rely upon to form their expectations."

Unfortunately, these tools are not always used or used correctly. The GAO report notes that recent simulations by the Treasury Department found that:

  • Employers are withholding too little from about 21 percent of taxpayers' checks, meaning these workers will owe money to the IRS when filing their taxes next April.
  • 73 percent of taxpayers have too much withheld from their checks and should receive an IRS refund.

Don't put all the blame on the tax bill, however. When the simulation was run as if there had been no tax changes this year, it showed that 18 percent of taxpayers still would have had too little withheld, and 76 percent would have had too much withheld.

[SHRM members-only HR Q&A: Are employers required to have employees complete a new W-4 each year?]

A Shorter, Simpler W-4

On June 6, the IRS released a draft of the 2019 Form W-4, which employers use to set an employee's withholding.

While the 2018 Form W-4 was four pages long, including instructions, the 2019 draft form is less than two. The draft form no longer has a line to report the number of allowances the taxpayer is claiming and instead would let employees specify the amount of deductions they plan to take or credits they plan to claim, as well as other income they expect to earn. If employees have more than one job, they can enter the amount of total wages for each job.

Employees who don't want to provide this information to their employer can use the online IRS calculator to find their appropriate withholding figure and use that dollar amount to complete the form.

The IRS cautioned that the final Form W-4 for 2019—to be released later this summer—may be revised, and employers and employees should not rely on the draft version.

Outreach Efforts

For its outreach to employees, employers and industry associations regarding proper withholding, the IRS plans to:

  • Encourage taxpayers to check their withholding and direct them to the withholding calculator on its website.
  • Provide employers with information they need to help employees.
  • Educate taxpayers about what actions they need to take, if any, based on their personal situations, especially if they were likely to have had too little tax withheld and could potentially be subject to a penalty in 2019.

The IRS emphasized it is especially important to revisit withholding for employees who belong to a multiple-income family, claim the child tax credit, have dependents over age 17, itemize their deductions, or have high incomes or complex tax situations.

"The IRS urges people in these groups to take a few minutes and review their withholding and tax situation," Kautter said. "Taking this step will help avoid surprises next year at tax time."

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