IRS issues Pub 15 plus W-4 withholding guidance

  • The IRS has released IRS Pub 15 and other guidance on withholding for 2018. The guidance: extends the effective period of Forms W-4, Employee’s Withholding Allowance Certificate, furnished to claim exemption from income tax withholding under section 3402(n) of the Internal Revenue Code (Code) for 2017 until February 28, 2018, and permits employees to claim exemption from withholding for 2018 by temporarily using the 2017 Form W-4;
  • Temporarily suspends the requirement under section 3402(f)(2)(B)1 that employees must furnish their employers new Forms W-4 within 10 days of changes in status that reduce the withholding allowances they are entitled to claim;
  • Provides that the optional withholding rate on supplemental wage payments under Treas. Reg. §31.3402(g)-1 is 22 percent for 2018 through 2025; and
  • Provides that, for 2018, withholding under section 3405(a)(4) on periodic payments when no withholding certificate is in effect is based on treating the payee as a married individual claiming three withholding allowances.

Change of status

An employee who experiences a change of status that causes a reduction in the number of withholding allowances isn’t required to give his or her employer a new Form W-4 until 30 days after the 2018 Form W-4 is released. An employee that has a reduction in the number of withholding allowances solely due to changes from P.L. 115-97 isn’t required to give his or her employer a new Form W-4 during 2018 but may do so at any time. Employees may use the 2017 Form W-4 to report changes to withholding allowances until 30 days after the 2018 Form W-4 is released. New employees may continue to claim allowances on the 2017 Form W-4 until 30 days after the 2018 Form W-4 is released. Employees who submit new Forms W-4 for 2018 using the 2017 Form W-4 don’t need to resubmit a 2018 Form W-4 when the 2018 Form W-4 is released.

Exempt from withholding

Generally, an employee may claim exemption from federal income tax withholding because he or she had no federal income tax liability last year and expects none this year. To continue to be exempt from withholding in 2018, an employee must give their employer a new Form W-4 by February 28, 2018. However, the 2018 Form W-4 may not be available before February 28, 2018. Employees may claim exemption from withholding for 2018 using the 2017 Form W-4 until 30 days after the 2018 Form W-4 is released. The 2017 Form W-4 must be (1) edited by striking “2017” in the text on line 7 and entering “2018” in its place, (2) completed by entering “Exempt 2018″ on line 7, or (3) not edited but signed in 2018 and submitted under procedures established by the employer for the employee to certify entitlement to exempt status for 2018 by using the 2017 Form W-4 to claim exemption from withholding for 2018. In addition to 1-3 above, the employee can use any substantially similar method to 1–3 that clearly conveys in writing the employee’s intent to certify his or her exemption from withholding for 2018. Employers that have established electronic systems for furnishing withholding allowance certificates may change their electronic systems to substantially conform with the options discussed above.
If the employee doesn’t give you Form W-4 by February 28, 2018, follow the withholding rules discussed in section 9 under Exemption from federal income tax withholding. Employees who claimed exemption from withholding for 2018 using the 2017 Form W-4, as discussed above, don’t need to resubmit a 2018 Form W-4 when the 2018 Form W-4 is released. (IRS Pub 15, (Circular E), Employer’s Tax Guide For use in 2018; IRS Notice 2018-14, January 29, 2018.)

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