W-2 Withholdings (Tax Cut & Jobs Act)

In a letter to Ranking Member of the Senate Finance Committee Ron Wyden (D-OR), dated February 25, 2019, J. Brady Howell, Senior Advisor, Treasury’s Office of Legislative Affairs responded to the statement that tens of millions of taxpayers will be underwithheld for 2018 and the suggestions that this was due to the Tax Cut & Jobs Act (TCJA). Howell said that the TCJA and IRS’s implementation of the law through the withholding tables and Form W-4 instructions would not cause tens of millions of taxpayers to be underwithheld. Rather, he said, tens of millions of taxpayers are underwithheld every year, due to taxpayers’ choices or the difficulties some taxpayers face in adjusting withholding to account for changes in their circumstances each year. And, recognizing that because the TCJA was new and some taxpayers would not have understood that they should check their withholding (despite the extensive IRS outreach efforts), Howell noted that IRS had provided taxpayer relief. Specifically, he noted that IRS recently announced that taxpayers would not be subject to the usual underpayment penalties as long as they timely paid at least 85% of the tax they owe. This would provide substantial relief to many taxpayers without creating large windfalls for taxpayers who would have been underwithheld in any event.