Final regulations govern income tax withholding rules after the TCJA.

• Author: Nevius, Alistair M.
• Position: Tax Cuts and Jobs Act of 2017

The IRS issued guidance to employers regarding the amount of federal income tax to withhold from employees' wages (TD. 9924). The final regulations implement changes enacted in the law known as the Tax Cuts and Jobs Act (TCJA), RL. 115-97, and reflect the redesigned Form W-4, Employee's Withholding Certificate, that the IRS has already issued and updated guidance the IRS has provided in other of its publications.

Among other changes, the TCJA modified the wage withholding rules found in Sec. 3402(a)(2) and replaced the former concept of "withholding exemptions" with a "withholding allowance, prorated to the payroll period." A withholding allowance is determined based on the factors listed in Sec. 3402(f)(1).

The IRS has addressed the TCJA withholding changes in earlier subregulatory guidance, including in revised Forms W-4 starting in 2018, in Notice 2018-92, and in IRS Publication 15-T, Federal Income Tax Withholding Methods, as well as in proposed regulations (REG-132741-17) issued in February 2020. The proposed regulations are finalized, with some changes, in TD. 9924.

The regulations provide two withholding methods: a percentage method and a wage bracket method. An employer applies the applicable percentage method or wage bracket method withholding tables corresponding to the marital status or filing status that the employee selects on a valid Form W-4. An employee will be treated as single unless the employee selects head-of-household or married-filing-jointly filing status on a valid Form W-4.

Computational bridge entries

One issue raised by commenters was that the TCJA did not require employees to furnish new Forms W-4 to conform to the TCJA changes to the withholding rules, so in some cases employers have to continue withholding according to outdated Forms W-4. To address this, the final regulations contain...