Clarifying instructions for the 2020 draft Form W-4 may help employees more accurately report amounts needed to calculate withholding, a payroll organization said June 28.
The American Payroll Association, in a letter to the Internal Revenue Service, requested that the agency include further guidance in the instructions for Form W-4, Employee’s Withholding Allowance Certificate, and for the draft withholding methods.
The draft 2020 Form W-4, released May 30, would require employees to report dollar amounts to adjust taxable wages and the amount of tax withheld. The form is to be revised because the federal tax code overhaul (Pub. L. 115-97) eliminated personal exemptions, which were the basis of withholding allowance amounts claimed on the form.
A draft Publication 15-T, “Federal Income Tax Withholding Methods,” released June 6, provides instructions for employers to calculate withholding using the amounts reported on the 2020 draft Form W-4.
While a final draft of Form W-4 is planned to be released in late July, a second draft of Publication 15-T also is possible if comments result in substantial changes, the IRS said.
The association recommended that the title of the W-4 be changed to “Employee’s Withholding Certificate,” as a data field to report withholding allowances is not included on the draft form.
Additional instructions are needed explaining how part-time, seasonal, and temporary employment should be addressed on Form W-4, the association said. “The reference to the Withholding Calculator in the General Instructions is insufficient because these types of jobs may be in addition to full-time employment,” it said.
Guidance also is needed on how employees are to report income from work as an independent contractor, the association said in the letter.
The draft Form W-4 should explain that checking the box in Step 2 causes income tax to be held at a higher rate, the association said. Employees who check the box would have income tax withheld using the higher withholding rate schedule included in the draft of Publication 15-T.
The association also recommended that the instructions include a reference to Publication 501, “Dependents, Standard Deduction, and Filing Information,” which employees may use to determine whether they qualify for head of household status included on the draft W-4.
The draft form also needs to clarify that employees claiming exemption from federal income tax withholding should skip Steps 2 to 4c, the association said.
The draft 2020 Form W-4 and Publication 15-T do not include instructions for withholding tax for nonresident alien employees. The association suggested that both documents refer employers and employees to Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens, and Publication 15, Circular E: “Employer’s Tax Guide,” for additional information. A check box also should be added to Form W-4 for employees to indicate nonresident alien status, the association said.
Additionally, the form’s instructions should indicate that nonresident alien employees should not use the withholding calculator or the form’s worksheets, the association said.
Including in Publication 15-T examples of withholding calculations under different scenarios “would be helpful for employers and payroll professionals,” the association said. The draft publication instructs employers to follow four steps, which include a combined 31 lines, to calculate withholding for 2020 Forms W-4 and pre-2020 forms.
The association encouraged the IRS to follow plans to update the withholding calculator to reflect the steps on the draft Form W-4 and to include instructions for reporting calculated amounts on the form. An update would “provide employees with a more effective means of completing Form W-4 accurately,” the association said.
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