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Overview: The Internal Revenue Service has released the “Early Release Copies of the 2019 Percentage Method Tables for Income Tax Withholding” that employers may use to determine the amount of federal incomes taxes that it must withhold from its employees’ pay each pay period.
Details:
On December 12, 2018, the Internal Revenue Service (IRS) has released the “Early Release Copies of the 2019 Percentage Method Tables for Income Tax Withholding” (Notice 1036 – Revised December 2018) that employers may use to determine the amount of federal incomes taxes that it must withhold form its employees’ pay each pay period. When using the percentage method of withholding, the tax for the pay period may be rounded to the nearest dollar. If rounding is used, it must be used consistently. Note the IRS has developed a number of withholding methods in addition to the percentage method of withholding.
Background:
An employee’s taxable wages under the percentage withholding method are determined by the employer multiplying the value of one withholding allowance, as adjusted for inflation, for the pay period by the number of allowances the employee has claimed on his or her Form W-4. Once the total value of an employee's withholding allowances is determined, that amount is subtracted from the employee's gross wages for the pay period. The remaining amount of wages are subject to income tax withholding. The percentage method tables are divided into pay periods and by marital status. For example, there are separate tables for single employees and married employees, and separate tables for weekly, biweekly, and semimonthly pay periods. Once an employer finds the correct table for the employer's pay period, the employee's marital status and taxable wages, the following steps apply.
- Find the appropriate taxable wage bracket on the left side of the table.
- Record the dollar amount of the tax to withhold.
- Subtract the amount of the employee's taxable wages that exceed the figure shown in the right hand column.
- Multiply this result by the appropriate percentage.
- Add the results from Steps 3 and 4 to arrive at the amount of income taxes to withhold from the employee's pay under the percentage method of withholding.
2019 Percentage Method Withholding Allowances
The withholding allowance amounts by payroll period for 2019 are as follows:
|
|
Payroll Period
|
One Withholding Allowance
|
|
|
Weekly
|
$
|
80.80
|
|
|
Biweekly
|
|
161.50
|
|
|
Semimonthly
|
|
175.00
|
|
|
Monthly
|
|
350.00
|
|
|
Quarterly
|
|
1,050.00
|
|
|
Semiannually
|
|
2,100.00
|
|
|
Annually
|
|
4,200.00
|
|
|
Daily or Miscellaneous
(each day of the payroll period)
|
|
16.20
|
2019 Tax Rates:
Tax rates in 2019 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Non Resident Employees:
Updated for 2019 (from 2018) are the amounts that employers should add to the wages paid to nonresident alien employees who perform services in the United States as follows.
Weekly $153.80
Biweekly $307.70
Semimonthly $333.30
Monthly $666.70
Quarterly $2,000.00
Semiannually $4,000.00
Annually $8,000.00
Daily or Miscellaneous $30.80
It is important to note that this computation does not have to be made for nonresident alien students and business apprentices from India.
Rates for withholding on supplemental wages for 2019
There is a two-tiered system for withholding income tax from supplemental wages at a flat rate:
• Optional flat rate: 22% for supplemental wages up to and including $1 million (no other percentage allowed), and
• Mandatory flat rate: 37% for supplemental wages over $1 million.
2019 Rate for backup withholding
Payers of reportable payments generally must backup withhold 24% for federal income tax if the payee fails to provide a correct Taxpayer Identification Number (TIN).
For a copy of Notice 1036 – Revised December 2018 please click on the link provided below.
https://www.irs.gov/pub/irs-pdf/n1036.pdf
Call to Action: Please contact your tax professional with any additional questions.