By May 31, 2019 the Internal Revenue Service (IRS) promises to release a Draft Version of next year’s W-4 for public comment, with the final version to be released by July 31.
Last year the payroll community raised concerns that the new form brought increased complexity, privacy concerns and added burdens on employers as well as not allowing enough time to reprogram systems. By September 2018, the IRS agreed to hold off publishing a revised form until this year, with the intention of it being in effect for tax year 2020. Meanwhile, the 2019 Form W-4 continues to rely on personal allowances based on exemptions which are not always accurate given the federal withholding changes included in the Tax Cut & Jobs Act (TCJA) passed in December 2017.
In late March 2019, early drafts of the new form were released to a select few. The new form is designed to better incorporate the changes of the TCJA, but it is expected to be very complex for the average employee. It is estimated that the new W-4 will take an hour to complete and further complicate the new hire process for employers. Also, dollar amounts for items such as spousal income, nonwage income from dividends & interest, expected tax credits, and itemized deductions are likely to be required. The IRS claims that providing these dollar amounts, if accurate, will guarantee proper withholding while the payroll community cites the same concerns as last year: an employee may not want to share personal information with the employer or have the necessary documentation readily available to complete the form. A delay of the final release could make it difficult for payroll systems to be reprogrammed.
What You Can Expect
Because the final version will not be released until late July (at the earliest), payroll systems will most likely need to account for two withholding methods: one to figure withholding based on the old allowances method and one developed to exclude allowances and rely on calculations from employee provided dollar amounts. Either way, employers will have an increased burden, including having to enter additional data while onboarding employees to their systems, educating new hires, allowing more time for employees to complete the W-4, etc. At this time, it is unknown if all existing employees will need to complete a new W-4 for 2020.
PROXUS will continue to monitor this situation and will post new developments throughout the summer months.