A draft copy of the employer’s withholding worksheet was released June 7 by the IRS as part of a new employer publication on income withholding methods for 2020. The worksheet was used by Bloomberg Tax to develop three scenarios used to calculate withholding from employee’s wages.
Publication15-T , Federal Income Tax Withholding Methods, offers instructions on how to compute withholding under new methods that were needed because of the federal tax code overhaul (Pub. L. 115-97), which took effect Jan. 1, 2018. The proposed four-step withholding worksheet uses 2019 income tax amounts so employers can program payroll systems to accommodate the 2020 changes for Form W-4, Wage and Tax Statement.
Here are the basic instructions:
An adjusted wage amount for an employee is calculated. There also is a section for an employee who provided W-4s from previous years as well as a section for those who have not submitted a W-4 for years starting in 2020.
A tentative wage amount is calculated based on the employee’s adjusted wage amount, filing status, and whether the box in Step 2 of the 2020 W-4 was checked. Revised percentage-method or wage-bracket-method tables can be used to determine the tentative withholding amount.
The worksheet accounts for tax credits entered by an employee on the 2020 W-4. If the W-4 is from earlier year, the tax credit amount is to be zero.
Lastly, the final amount to withhold is calculated by including additional amounts for each pay period as requested by the employee.
The proposed employer’s withholding worksheet and percentage-method table for income tax withholding contains two calculations--a standard withholding rate schedule and a higher rate withholding schedule.
Bloomberg Tax developed three examples for income withholding to compare current withholding amounts to those using the methods outlined in the draft Publication 15-T:
- Scenario 1: Isaac is single, earns $1,000 a week and has two allowances. He has no other adjustments. Using the 2019 percentage-method withholding, the employers would withhold $88.75 from his paycheck. Using the proposed 2020 method and standard withholding, the amount would be $88.74. Under the higher withholding option, Isaac’s amount would be $155.83. Line 2 of the 2020 W-4 was checked.
- Scenario 2: Margie is married, earns $1,000 a week and has two allowances and no other adjustments. Using the 2019 percentage-method method, $69.91 would be withheld from her paycheck. Using the proposed 2020 method and standard withholding, $56.23 would be withheld. Under the higher withholding option, Margie’s amount would be $88.74. Line 2 of the 2020 W-4 was checked.
- Scenario 3: John is married, earns $1,500 per week, has five allowances, $500 in other income, and $50 in deductions. Using the 2019 percentage-method method, $96.82 would be withheld from his paycheck. Using the proposed 2020 method and standard withholding, $117.27 would be withheld. Under the higher withholding option, John’s amount would be $200.64. Line 2 of the 2020 W-4 was checked.
Comments regarding Publication 15-T may be submitted to WI.W4.Comments@IRS.gov until July 8. Comments on the draft W-4 may be submitted at the same email address until July 1.
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