As previewed by the recent final Form W-4 regulations published in October (see earlier coverage), the IRS released a draft of Publication 15-T (Federal Income Tax Withholding Methods) on November 17. The publication provides a new computational method for employers who must continue to rely on pre-2020 Forms W-4 to determine the amount of federal income tax to withhold from employee’s wages.
The IRS issued a redesigned Form W-4 for 2020 to reflect the changes to withholding made by the 2017 Tax Cuts and Jobs Act. Beginning in 2020, employers are required to collect the new Form W-4 from new hires, but are not permitted to require existing employees with a valid 2019 or earlier Form W-4 on file to submit a new Form W-4 to the employer. In other words, the employer must continue to withhold according to a valid pre-2020 Form W-4 submitted by an employee until an employee furnishes the employer a new Form W-4, which requires employer to maintain two withholding systems.
As was the case with earlier years, the 2021 draft Publication 15-T contains federal percentage and wage-bracket withholding methods for use with Forms W-4 in 2020 and later, as well as Forms W-4 from 2019 and earlier. For the first time, however, the publication includes instructions for employers that may want to use an optional approach, referred to as a “computational bridge,” to treat a 2019 or earlier Form W-4 as if it were a 2020 or later Form W-4 for purposes of calculating federal income tax withholding. The computational bridge may be applied only to a 2019 or earlier Form W-4 that remains in effect because an employee did not submit a withholding certificate for 2020 or later. The computational bridge calculation, with up to four adjustments detailed in the publication, allows employers to use the computational procedures and data fields for the redesigned Form W-4 to arrive at an equivalent amount of withholding for an employee that would have applied using the computational procedures and data fields for a 2019 or earlier Form W-4 furnished by the employee. If the employee is required to submit a new Form W-4 (i.e., a post-2019 Form W-4) to the employer, or voluntarily chooses to do so, the current year’s version of the Form W-4 must be used and therefore the use of the computational bridge is no longer applied to that employee’s Form W-4.
Draft Publication 15-T explains that the optional computational bridge may be used to comply with the requirement to withhold in response to a “lock-in” letter issued to the employer by the IRS. The draft publication also discusses how to calculate the amount of federal income tax to withhold from the wages of nonresident aliens working in the U.S. for whom withholding is required using the computational bridge with a minor adjustment. Nonresident alien students and business apprentices from India are not subject to this procedure, however.