The IRS has released additional guidance for employers, employees on Form W-4 as a result of the new tax law

Earlier this month, the Internal Revenue Service (IRS) released Notice 1036, which updates the federal income tax withholding tables for 2018 to reflect changes made by the tax reform legislation enacted at the end of 2017. As part of this notice, the IRS stated that it was currently working to update its forms to reflect the Tax Cuts and Jobs Act, but that employers should plan to continue using the 2017 Form W-4 until the 2018 Form W-4 is released.

Expiration date of 2017 Form W-4s extended until February 28, 2018

On January 29, the IRS published Notice 2018-14, notifying employers that it did not anticipate the agency would be able to publish a new Form W-4 before the 2017 form was set to expire on February 15.

As an interim measure, the IRS has chosen to extend the effective period of Forms W-4 employers have on file for employees who claimed exempt status in 2017 until the end of next month (February 28, 2018).

Guidance for employees wanting to claim exempt status for 2018

This notice also provides several ways employees either making a new claim or renewing a 2017 claim can claim exempt status for 2018 using the 2017 Form W-4:

1. Modifying the 2017 Form W-4 by striking “2017” in the text on Line 7 of the Form W-4 and entering “2018” in its place and signing the form in 2018;
2. Modifying the 2017 Form W-4 by entering “Exempt 2018” on Line 7 of the 2017 Form W-4 and signing the form in 2018;
3. Using the 2017 Form W-4 without modification and signing the form in 2018, provided that the employer establishes and communicates to employees a procedure under which an employee signs and furnishes the 2017 Form W-4 in 2018 to certify both that the employee incurred no income tax liability for 2017 and that the employee anticipates that he or she will incur no income tax liability for 2018 and thus claims exemption from withholding for 2018; or
4. Any method substantially similar to (1)–(3) that clearly conveys in writing an employee’s intent to certify his or her exemption from withholding for 2018.

These procedures will remain in effect for up to 30 days after the IRS publishes the 2018 Form W-4. Employees who claim exemption from withholding for 2018 using the 2017 Form W-4 as outlined above will not need to furnish a 2018 Form W-4 after the 2018 Form W-4 is released.

In addition, the notice also temporarily suspends the requirement that employees submit a new Form W-4 to their employer within 10 days after any change in their tax status that reduces the number of withholding allowances to which they are entitled. Notice 2018-14 extends that period to 30 days, and also permits employees who have a reduction in the number of withholding allowances solely as a result of the changes made by the new tax law are not required to provide their employers with new withholding allowance certificates during 2018. The notice makes clear, however, that employees may update their withholding at any time in response to the act.

Record-keeping guidance for employers regarding Form W-4

Employers are required to keep records of all Forms W-4 submitted by their employees. Those who chose either option three or four (as outlined above) for allowing employees to claim exempt status for 2018 using the 2017 form must clearly identify whether the form(s) submitted by employees are for 2017 or 2018. This applies to Forms W-4 submitted via paper forms and those submitted an electronic system. (The notice provides that employees that have an electronic system in place for employees to submit completed W-4s may alter that system to make it conform to any of the four procedures outlined above.)

This article is not intended to be exhaustive nor should any discussion or opinions be construed as tax advice. Readers should consult their tax accountant or a certified tax professional for tax advice.