Payroll professionals with operations in the U.S.A. now have one of the key ingredients needed to start 2025 with accurate pay to workers: the draft of Internal Revenue Service Publication 15-T, Federal Income Tax Withholding Methods (for use in 2025).
Since 2019, the IRS has released this publication as a draft with spreadsheets of formulas and wage bracket tables that are for use by payroll software and processing applications. The final version of Publication 15-T itself will include the latest formulas and wage bracket method tables that guide in calculating income tax amounts to be deducted from each pay for each U.S. worker.
But the spreadsheets can be used now to adjust programs that payroll software and service providers can apply to their systems or services in time for the first payroll of the year.
Accounting for Two Valid Form W-4 Types
When workers are hired as employees, they are to file Form W-4, Employee’s Withholding Certificate, with their employer. This form gives employers specific-to-the-employee information to use when calculating income tax withholding each pay period.
Employees can change this information by filing a new Form W-4 and employers generally are to implement those changes within 30 days. Employees are encouraged to use the IRS Withholding Tax Estimator in filling out the W-4. Electronic versions of the form are allowed and are included in many employee self-service programs.
The Tax Cut and Jobs Act of 2017 created the need to drastically change the form and the overall method of withholding to account for the elimination of personal and dependent exemptions. To counter the potential increase in taxes due to this change, the law substantially increased the standard deduction, so that, in the end, most individuals saw little difference in their overall tax burden, even if their tax rate did not change.
Removing these exemptions, the equivalent of allowances for payroll withholding purposes, was intended to simplify individual taxes; it was one less figure to account for when filing individual returns.
For payroll applications, however, the implementation has been anything but simple.
Not only did the law require an entirely new Form W-4 to be developed--which took two years--but older Forms W-4 using the now eliminated personal and dependent allowances remained valid until changed by the employee.
Employers are not allowed to force employees to re-file using the newer Form W-4 and only employees newly-hired or those wishing to change their withholding amounts are required to use the latest Form W-4.
The result: Withholding methods for employees with valid older forms are very different than for those who filed using the newer version that was effective for 2020.
Even though main federal tax rates have not changed since 2018, the new Publication 15-T provides revisions to the data payroll operations and their systems must incorporate for withholding taxes. This is due to built-in inflationary adjustments to the tax rate tables and increases in the standard deduction.
Nonresident Withholding
Included in the draft publication’s spreadsheets are increased amounts to be added to the taxable pay of nonresidents working in the U.S. to figure their withholding taxes.
For 2025, using the newer W-4s, payroll is to add up to $15,000 to the taxable pay of most nonresidents, up from $14,600 in 2024. Those nonresidents who still have older W-4 forms on file will see that additional annual amount increase to $10,700 from $10,300.
Author: Michael Baer
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.
Payroll professionals with operations in the U.S.A. now have one of the key ingredients needed to start 2025 with accurate pay to workers: the draft of Internal Revenue Service Publication 15-T, Federal Income Tax Withholding Methods (for use in 2025).
Since 2019, the IRS has released this publication as a draft with spreadsheets of formulas and wage bracket tables that are for use by payroll software and processing applications. The final version of Publication 15-T itself will include the latest formulas and wage bracket method tables that guide in calculating income tax amounts to be deducted from each pay for each U.S. worker.
But the spreadsheets can be used now to adjust programs that payroll software and service providers can apply to their systems or services in time for the first payroll of the year.
Accounting for Two Valid Form W-4 Types
When workers are hired as employees, they are to file Form W-4, Employee’s Withholding Certificate, with their employer. This form gives employers specific-to-the-employee information to use when calculating income tax withholding each pay period.
Employees can change this information by filing a new Form W-4 and employers generally are to implement those changes within 30 days. Employees are encouraged to use the IRS Withholding Tax Estimator in filling out the W-4. Electronic versions of the form are allowed and are included in many employee self-service programs.
The Tax Cut and Jobs Act of 2017 created the need to drastically change the form and the overall method of withholding to account for the elimination of personal and dependent exemptions. To counter the potential increase in taxes due to this change, the law substantially increased the standard deduction, so that, in the end, most individuals saw little difference in their overall tax burden, even if their tax rate did not change.
Removing these exemptions, the equivalent of allowances for payroll withholding purposes, was intended to simplify individual taxes; it was one less figure to account for when filing individual returns.
For payroll applications, however, the implementation has been anything but simple.
Not only did the law require an entirely new Form W-4 to be developed--which took two years--but older Forms W-4 using the now eliminated personal and dependent allowances remained valid until changed by the employee.
Employers are not allowed to force employees to re-file using the newer Form W-4 and only employees newly-hired or those wishing to change their withholding amounts are required to use the latest Form W-4.
The result: Withholding methods for employees with valid older forms are very different than for those who filed using the newer version that was effective for 2020.
Even though main federal tax rates have not changed since 2018, the new Publication 15-T provides revisions to the data payroll operations and their systems must incorporate for withholding taxes. This is due to built-in inflationary adjustments to the tax rate tables and increases in the standard deduction.
Nonresident Withholding
Included in the draft publication’s spreadsheets are increased amounts to be added to the taxable pay of nonresidents working in the U.S. to figure their withholding taxes.
For 2025, using the newer W-4s, payroll is to add up to $15,000 to the taxable pay of most nonresidents, up from $14,600 in 2024. Those nonresidents who still have older W-4 forms on file will see that additional annual amount increase to $10,700 from $10,300.
Author: Michael Baer
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.