The Tax Cuts and Jobs Act of 2017 (TCJA) is nearly a year old, and the Internal Revenue Service (IRS) is still struggling to figure out how to assist taxpayers with their withholding under the new law. The push from Congress to make things “simple” means that many taxpayers might not be withholding enough – and that may not change any time soon.
In February, the IRS released an updated form W-4, Employee’s Withholding Allowance Certificate (downloads as a PDF) to reflect changes in the new tax law. But the form didn’t cover situations for all taxpayers. So, in June, the IRS released a draft version of an updated form W-4—this one for 2019—on its website (downloads as a PDF). That draft was immediately met with criticism from tax professionals who feared that it might not protect taxpayers from claiming the wrong withholding.
The IRS clearly expected criticism, cautioning on the draft W-4 that “we anticipate it is likely that this form will change before being released as final.” The agency promised to revisit the form, and this week, issued a statement confirming that it will not release a 2019 form W-4 which is significantly different from the current form. A new draft of that form for 2019 will be available in the coming weeks, but it will look like the 2018 version.
As to the pushback? It was not insignificant. Tax professionals wrote letters expressing their concerns included Jean C. Nelsen, president of the National Association of Enrolled Agents (NAEA) and Annette Nellen, chair of the AICPA Tax Executive Committee. Nelsen called the draft form and instructions “too long and too complicated,” pointing out “the taxpayer is directed to reference up to 12 other publications and forms” (You can read the NAEA letter in full here). Nellen also called the form “unduly complicated,” noting that it “essentially requires taxpayers to calculate their tax liability.” (You can read the AICPA letter, which downloads as a PDF) in full here.)
In response, the IRS has indicated that “Following feedback from the payroll and tax communities, the Treasury Department and the IRS will incorporate important changes into a new version of the Form W-4, Employee’s Withholding Allowance Certificate, for 2020.” The new version will help employees improve withholding accuracy, and fully reflect changes included in the Tax Cuts and Jobs Act.
That’s right. To be clear, a law that Congress pushed through at the end of 2017, which was effective beginning in 2018, won’t have clear guidance for taxpayers on withholding until 2020.
It would be easy to blame IRS for not responding more quickly. But a great deal of blame lay at the feet of Congress who pushed through a temporary tax cut which they promised would result in a tax return that could fit on a postcard. The problem, of course, is that we don’t have one-sized fits all taxpayers and the Tax Code still remains quite complicated. Pushing through changes that only apply for a few years doesn’t help. And many of those tax changes – like the loss of the personal exemption amount and the doubling of the standard deduction – are so sweeping that many taxpayers really don’t know what their real tax liability should look like in 2018. Or 2019.
In the meantime, the IRS advises taxpayers to take advantage of the new Withholding Calculator which reflects changes under the new tax law. (You can find the new withholding calculator on the IRS website here.) But as for a new form W-4? As with tax reform, we’ll only have a temporary version for next year.