Handling new hires, employees claiming ‘exempt’

 

With 2018 already underway, and last year’s Form W-4 still in use, Payroll pros need clear-cut answers from the IRS about how to handle new hires and employees who claim they’re exempt from withholding.

 

So it’s a relief that the IRS has issued Notice 2018-14, providing guidance on withholding rules in light of tax reform.

 

What to do

 

First, as for new hires, the 2017 Form W-4 can be used until 30 days after the new W-4 is released.

 

Important: When the new form is available, employees who’ve filled out the 2017 version don’t have to submit a 2018 W-4.

 

Next, while the 2018 Form W-4 should be available shortly, the IRS doesn’t think it’ll be ready by Feb. 15, 2018 – that’s the day the 2017 exemption from withholding will expire for affected employees.

 

To account for the delay, the agency has extended the effective period for Forms W-4 completed in 2017 until Feb 28, 2018.

 

As a way to provide additional flexibility, employees will be allowed to fill out the 2017 W-4 form to claim federal tax exemption for 2018.

 

This option is available for up to 30 days after the new W-4’s release. Employers can choose from four methods to make the 2017 W-4 valid for use in 2018, which are:

 

Editing the text of line 7 to remove 2017 and write 2018 in its place

 

Writing “Exempt 2018” on line 7

 

Creating an internal process to certify and confirm employees’ exempt status, and signing off on an unedited 2017 W-4 in 2018 and

 

Similar methods offered in writing.

 

Withholding changes

 

Typically, if workers experience a change in a status that reduces their tax withholding allowances, they must complete a new W-4 within 10 days.

 

Now, such employees don’t have to submit a new W-4 until 30 days after the 2018 W-4 is released.

 

And if their withholding allowances are only changing because of new tax guidelines, they don’t have to submit a new W-4 at all although they can voluntarily do so at any time.