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The W-4 form is used by employers to withhold the proper amount of federal income taxes from employees’ paychecks. The Internal Revenue Service (IRS) recommends that employees submit a new W-4 every year or anytime their financial situation changes significantly. The IRS recently published a preliminary draft of the new W-4 form for 2019. The finalized version of the new W-4 form will likely come out by the end of the summer.

The recent federal tax overhaul significantly changed how individual income taxes are calculated. This directly effects the method for figuring out withholding, meaning employers needed an updated W-4 to ensure calculations would be correct. In an ideal world, if an employee follows the instructions on the W-4, it will determine a withholding amount close to their income tax liability. Although it’s not an exact science, the new W-9 form aims to closely mirror the new tax code so that employee withholdings will be accurate.

Major Tax Changes

Although the official final draft of the new W-9 form has yet to be released, the preliminary draft has several key withholding changes including:

  • Method of structuring withholding: the approach to withholding will change significantly, with more emphasis being put on individual income tax liability rather than the number of allowances.
  • Incremental tax rates: in the new W-4 form, it prompts the highest paying job in the household to disclose any additional family income, including tax credits individuals anticattle claiming.
  • Online aids: the IRS plans to offer an online withholding calculator for employees who don’t want to disclose their financial information to their employer or who have more complex tax situations.
  • New W-4s not required: the IRS plans to encourage the use of the W-4, but not mandate it. New withholding methods will be designed to be backwards compatible with previously filed W-4s.
  • New hires: employees who do not sign a W-4 as new hires will calculate withholding as though single, claiming no adjustments.
  • Detailed instructions: the IRS will provide a detailed instruction page to assist employees in filling out the new W-4.

What Should Employers Do

As an employer, you should take the following steps:

  • Wait on the final word from the IRS on the new withholding rules and W-4 form.
  • Support the new withholding methodologies and use the new W-4 form, even though it’s not required.
  • Ensure withholding are adjusted appropriately for employees who choose to complete a new W-4.
  • Stay alert for the finalized withholding structure and new W-4 form for 2019. Ensure your payroll system can support the requirements.
  • Make sure to double-check state tax code changes. Oftentimes when there is a major federal tax withholding change, states will have to decide how to adapt to the federal process.
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