In an unprecedented move, the IRS has released a third draft of the 2020 Publication 15-T, Federal Income Tax Withholding Methods. The IRS did not change how to calculate withholding using the Percentage Method and Wage Bracket Method from the second draft. However, this draft expands on the first two drafts by including a discussion of alternative methods of withholding and information on withholding on periodic payments of pensions and annuities. This draft also includes technical corrections to the worksheets and guidance on withholding when a new employee does not complete a Form W-4.
Pensions and Annuities
Withholding from periodic payments of a pension or annuity is figured in the same manner as withholding from wages, except that it does not matter if the Form W-4P, Withholding Certificate for Pension or Annuity Payments, is from 2019 or earlier or a 2020 Form W-4P. Use Worksheet 5 on page 18 of Publication 15-T and the corresponding Percentage Method tables to figure federal income tax withholding on these payments. Employers that prefer using the Wage Bracket Method may use Worksheet 3 on Page 12 of Publication 15-T and the corresponding Wage Bracket Method tables.
If the recipient does not submit Form W-4P, employers must withhold on periodic payments as if the recipient were married claiming three withholding allowances.
New Employees Who Do Not Submit Form W-4
New employees who are first paid wages in 2020 and who fail to submit a Form W-4 will be treated as if they had checked the box for Single or Married filing separately in Step 1(c) and made no entries in Step 2, Step 3, or Step 4 of the 2020 Form W-4. This means that employers will withhold using the amount in Step 1g of the withholding procedures ($8,400 for 2019) on page 5 of Publication 15-T.
The Final Version
The final version of the 2020 Publication 15-T will not be released until December. The IRS said “there will be no further substantive changes to the Percentage or Wage Bracket Method,” but will accept public comments until November 15.
APA’s Comments
APA’s Government Relations Task Force IRS Issues Subcommittee submitted comments on the second draft of the 2020 Publication 15-T. The IRS incorporated many of APA’s suggestions into the third draft, including technical corrections to the worksheets. If you would like to join the subcommittee, indicate your interest by completing the Contact Us form on the APA website.
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Curtis E. Tatum, Esq., is Director of Federal Payroll Compliance for the APA.