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States Prepare for Federal Withholding Changes

by Symmetry Tax Updates | Jan 23, 2019

As 2019 is the last year that the Internal Revenue Service plans to use the system of allowances for federal income tax withholding, several states have already made changes to their withholding systems in advance of the scheduled 2020 federal changeover.

A redesigned federal Form W-4, Employee’s Withholding Allowance Certificate, is to be released by the IRS for use in 2020. The form underwent significant changes based on the tax code overhaul (Pub. L. 115-97) that took effect Jan. 1, 2018 and reduced the personal exemption to zero and modified tax withholding from wages.

Missouri removed the use of withholding allowances entirely for 2019, while Oregon, Montana, and Idaho released state-specific withholding certificates, and Vermont recommended that employers consider requiring employees to fill out its state withholding certificate.

Missouri’s 2019 withholding formula, released Dec. 12, only uses the employee’s filing status and a standard deduction to calculate withholding. A new version of Form MO-W-4, Employee’s Withholding Certificate, was released with the formula and allows employees to indicate their filing status or request exemption from withholding. Employees may also request additional withholding if they expect to owe tax or reduced withholding if they expect a refund.

Oregon’s Form OR-W-4, Oregon Employee’s Withholding Allowance Certificate, was released Nov. 30, and was developed because the use of the federal Form W-4 may no longer result in the correct number of allowances for state purposes, the state revenue department said in the form’s instructions. New employees are to fill out Form OR-W-4, as well as those who did not file a federal W-4 marked for state purposes in 2018 or 2019 and those whose situations change. Employers may still use the federal W-4 to calculate state withholding if an employee has not submitted any state-specific form, the department said.

Only new employees and those claiming exemption from withholding need to fill out Montana’s new Form MW-4, Montana Employee’s Withholding Allowance and Exemption Certificate, for 2019, the form’s instructions said. Employees who already have filed a federal Form W-4 do not need to fill out the Form MW-4 unless their situation changes, the instructions said.

Vermont recommended that employers require their employees to fill out Form W-4VT, Employee’s Withholding Allowance Certificate, the state tax department said when releasing the state’s 2019 withholding methods Dec. 26. The federal W-4 may still be used to calculate withholding, but doing so may result in under withholding, the department said.

Idaho released Form ID W-4, Employee’s Withholding Allowance Certificate, Jan. 7. The form replaces the use of the federal W-4, modified to report the number of state allowances claimed next to the number of federal allowances on Line 5, for state purposes.

The remaining states that only use the federal W-4 for state purposes are Colorado, Delaware, Nebraska, New Mexico, North Dakota, South Carolina, and Utah. However, Utah only uses the filing status claimed on the W-4, not the allowances, to calculate state withholding.

Among states that have their own withholding certificates, all use allowances for state purposes except Arizona, which allows employees to select from a range of withholding rates, and Missouri.

Kentucky’s Form K-4, Kentucky’s Exemption Certificate, is only used to claim exemption from withholding, while Pennsylvania does not use any withholding certificate.

Moving Expenses

States that do not conform to the treatment of fringe benefits in the federal tax code overhaul (Pub. L. 115-97) and do not consider qualified moving expenses taxable include Arkansas, Arizona, California, Hawaii, Massachusetts, Minnesota, New York, Pennsylvania, and Virginia.

New Jersey considers only the portion of moving-expense reimbursements that exceed an employee’s expenses to be taxable.

Iowa considers moving expenses taxable effective Jan. 1, 2019, as its Internal Revenue Code conformity date was moved for 2019 to March 24, 2018. Effective Jan. 1, 2020, Iowa is to conform to the most recent version of the I.R.C automatically.

New Deadlines

Michigan, New Mexico, and West Virginia moved their deadlines for submitting Forms W-2 to the state to Jan. 31 from Feb. 28 for 2019.

New Mexico also is to require employers with at least 25 forms to file electronically.

However, Michigan’s annual withholding return, Form 5081, Sales, Use, and Withholding Taxes Annual Return, is still due Feb. 28 in 2019, the state treasury department said.

The states that have annual reconciliation deadlines of Feb. 28, instead of Jan. 31, are Hawaii, Maine, Michigan, New Jersey, and Oklahoma. Of those states, Maine and Michigan require Forms W-2 to be submitted to the state by Jan. 31

Missouri retains a Feb. 28 deadline for paper filers for the annual reconciliation and Forms W-2.

Oklahoma’s deadline for submitting Forms W-2 is to move to Jan. 31 from Feb. 28 starting with 2019 forms filed in 2020, the state tax commission said when Oklahoma’s 2019 withholding tables were released Dec. 18.