Final regs issued on TCJA wage withholding changes

Tax Hot Topics newsletter The IRS recently issued final regulations (T.D. 9924) implementing changes made by the Tax Cuts and Jobs Act to the rules for withholding income tax from employee wages. The final regulations adopt proposed regulations issued in February but make some changes in response to comments from taxpayers (for more details on the proposed regulations, see our story “Proposed regs implement TCJA withholding changes”).

Most notably, the final regulations allow employers to use computational bridge entries to adjust computational procedures and data fields on an employee’s 2019 or older Form W-4 to arrive at the equivalent withholding under the redesigned Form W-4. The use of computation bridge entries is optional and was provided in response to concerns that not requiring all employees to furnish redesigned Forms W-4 would result in administrative burdens and inaccurate withholding. The IRS indicated the four adjustments necessary to implement the computational bridge entries will be provided in Publication 15-T.

The final regulations also address taxpayer concerns about whether a lock-in letter based on 2019 or earlier-year Form W4 computational procedures ceases to be effective because of the redesign of Form W-4. The final regulations follow the proposed regulations and provide that the redesign of Form W-4 alone does not require the IRS to reissue lock-in letters or modification notices. Employers must continue following any lock-in letter or modification notice until the IRS releases the employee from the program or unless the employee furnishes a Form W-4 that results in more withholding than under the lock-in letter or modification notice.

The final regulations are generally applicable as of Oct. 6, 2020 (except for several earlier applicability dates specified in the proposed regulations), but taxpayers may choose to apply most of them on and after Jan. 1, 2020.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
+1 202 521 1554

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