Employers must make up to four adjustments to use this option for treating Forms W-4 before 2020 like they are from 2020 and later.
The IRS has added an optional computational bridge to its 2021 version of Publication 15-T (Federal Income Tax Withholding Method) that employers can use if they want to treat 2019 or earlier Forms W-4 as if they were 2020 or later Forms W-4 for the purposes of determining federal income tax withholding.
Background. Following the enactment of the Tax Cuts and Jobs Act (TCJA) in late-December 20217, the IRS needed to significantly revise Form W-4 (Employee’s Withholding Certificate) (see Payroll Guide 4010). This is because the TCJA made several changes that included eliminating withholding allowances from 2020 through 2025.
Beginning with the 2020 Form W-4, employees are no longer able to request adjustments to their withholding using withholding allowances. Instead, employees use the new version to provide employers with amounts to increase or decrease the amount of taxes withheld and amounts to increase or decrease the amount of wage income subject to income tax withholding.
Publication 15-T. New Publication 15-T was created by the IRS in 2020 to assist employers in determining employee federal income tax withholding. It includes methods for employers to determine withholding for Forms W-4 from 2019 and before and Forms W-4 from 2020 and after. The publication supplements Publication 15 (Employer’s Tax Guide) and Publication 51 (Agricultural Employer’s Tax Guide).
Publication 15-T also describes how to figure withholding using the wage bracket method or percentage method, describes the alternative methods for figuring withholding, and provides the Tables for Withholding on Distributions of Indian Gaming Profits to Tribal Members.
The publication can’t be used if the 37% mandatory flat rate withholding applies or if the 22% optional flat rate withholding is used to figure federal income tax withholding. It also can’t be used to figure withholding on non-periodic payments or withholding on eligible rollover distributions. Publication 15-A (Employer’s Supplemental Tax Guide) should be used for more information on pensions and annuities.
Computational bridge. The 2021 version of Publication 15-T explains that employers may use an optional computational bridge to treat 2019 or earlier Forms W-4 as if they were 2020 or later Forms W-4 for purposes of figuring federal income tax withholding. An employer must make up to four adjustments to use the computational bridge, as follows:
- Select the filing status in step 1(c) of a 2020 or later Form W-4 that most accurately reflects the employee’s marital status on line 3 of a 2019 or earlier Form W-4. Treat the employee as “Single or Married filing separately” on a 2020 or later Form W-4 if the employee selected either “Single” or “Married, but withhold at higher single rate” as their marital status on their 2019 or earlier Form W-4. Treat the employee as “Married filing jointly” on a 2020 or later Form W-4 if the employee selected “Married” as their marital status on their 2019 or earlier Form W-4. An employer can’t convert an employee to a filing status of “head of household” using this computational bridge.
- Enter an amount in step 4(a) on a 2020 or later Form W-4 based on the filing status that the employer determined in (1) above when the employer converted the employee’s marital status on a 2019 or earlier Form W-4. Enter $8,600 if the employee’s filing status is “Single or Married filing separately” or $12,900 if the employee’s filing status is “Married filing jointly.”
- Multiply the number of allowances claimed on line 5 of an employee’s 2019 or earlier Form W-4 by $4,300 and enter the result in step 4(b) on a 2020 or later Form W-4.
- Enter the additional amount of withholding requested by the employee on line 6 of their 2019 or earlier Form W-4 in step 4(c) of a 2020 or later Form W-4.
The computational bridge applies only for Forms W-4 that were in effect on or before December 31, 2019, and that continue to be in effect because an employee didn’t submit a 2020 or later Form W-4. If an employee is either required, or chooses, to submit a new Form W-4, it doesn’t change the requirement that the employee must use the current year’s revision of Form W-4. Upon putting in effect a new Form W-4 from an employee, the employer must stop using the computational bridge for the applicable year of the new Form W-4. An employer using the computational bridge for a Form W-4 furnished by an employee must retain the Form W-4 for its records.
Computational bridge for nonresidential aliens. An employer may use the computational bridge to convert a nonresident alien employee’s 2019 or earlier Form W-4 to a 2020 or later Form W-4. However, for the second adjustment of the computational bridge, always enter $4,300 in step 4(a) on a 2020 or later Form W-4. If an employer converts a nonresident alien employee’s 2019 or earlier Form W-4 to a 2020 or later Form W-4, the employer should use Table 2 when adding an amount to their wages for figuring federal income tax withholding.
Lock-in letters. The IRS may have notified an employer in writing that the employee must use a specific marital status and is limited to a specific number of allowances in a letter (commonly referred to as a “lock-in letter”) applicable before 2020. For lock-in letters based on 2019 or earlier Forms W-4, an employer may use the optional computational bridge to comply with the requirement to withhold based on the maximum withholding allowances and filing status permitted in the lock-in letter.
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