IRS Finalizes 2022 Federal Tax Withholding Guidance and Forms

The IRS released the final version of the 2022 Publication 15-T on December 13, 2021, and the final versions of the 2022 Form W-4P and Form W-4R on January 3, 2022.

The IRS has announced that the 2021 version of the Form W-4P may be used through the end of 2022, giving systems more time to shift to the new withholding process for new payees and other payees who complete a 2022 Form W-4P. The current version of the 2021 Form W-4P can be found here.

A retirement system may continue to use the “prior” withholding methodology and continue to have members use the 2021 Form W-4P through the end of 2022. However, the IRS expects payers to update their system programming for the 2022 Form W-4P and to start using that programming when it is in place. See IRS Publication 15-T, pp. 1 and 5 (2022). Consequently, once a retirement system has implemented the updated programming for 2022 Forms W-4P, the system may switch over to using the new forms for new tax withholding elections (which will be required starting January 1, 2023).

With the final release of 2022 IRS Publication 15-T and the 2022 Form W-4P and Form W-4R, the IRS has finalized the worksheets, computational bridge steps, and updated withholding tables for 2022, which will allow systems to complete their programming for the new tax withholding procedures and updated withholding tables. Additionally, the final release of 2022 IRS Publication 15-T provides helpful clarification on the different withholding approaches that will be available for pension and annuity payments in 2022, as summarized below:

Worksheet 1B: This worksheet may be used for 2022 Form W-4P or a 2021 and earlier Form W-4P with the STANDARD Withholding Rate Schedules in the 2022 Percentage Method Tables for Automated Payroll Systems and Withholding on Periodic Payments of Pensions and Annuities (IRS Publication 15-T, Section 1, pp. 8 and 10 (2022)). Thus, this withholding table is used for Form W-4P from any year, when using Worksheet 1B to determine withholding (Worksheet 1B notes the differences to be applied for a 2021 or earlier Form W-4P versus a 2022 Form W-4P).
Computational Bridge: The optional computational bridge will treat 2021 or earlier Forms W-4P as if they were 2022 or later Forms W-4P for purposes of determining federal tax withholding. There are up to four adjustments that are made in order to use Worksheet 1B (if you use the computational bridge, you will skip Steps 1(j) – 1(l) and any other instructions in Worksheet 1B that reference a 2021 or earlier Form W-4P (because the computational bridge will treat the earlier Form W-4P as if it were a 2022 Form W-4P). (IRS Publication 15-T, p. 6 (2022).)
- With respect to the use of the computational bridge, we encourage systems to talk with their programmers regarding whether the use of the computational bridge streamlines the programming or whether the “prior” withholding methodology for earlier Form W-4Ps is preferred. As we have worked with systems and their vendors, it has become apparent (at least using the prior withholding tables) that the withholding amounts determined by using the computational bridge and by using the prior withholding methodology are essentially the same. The 2022 IRS Publication 15-T makes clear that a system processing 2021 and earlier Form W-4Ps may continue to use the prior federal tax withholding methodology (instead of the computational bridge).
Alternate Withholding Methods for 2021 and Earlier Form W-4P (Section 3 and Section 5): A payer may alternatively use the withholding methods described in Section 3 and Section 5 of Publication 15-T, which are the “prior” methods that payers generally have used with respect to determining tax withholding, for a 2021 or earlier Form W-4P. Section 3 includes the Wage Bracket Method Tables for Manual Payroll Systems with Forms W-4 from 2019 or earlier, which may be used in lieu of Worksheet 1B. Alternatively, under Section 5, the Percentage Method Tables for Manual Payroll Systems with Forms W-4 from 2019 or earlier may be used for a 2021 or earlier Form W-4P in lieu of Worksheet 1B. (Note that, if a system uses the withholding percentage method tables under Section 5, the ANNUAL payroll period table on p. 63 of Publication 15-T is the same as the STANDARD Withholding Rate Schedules on p. 10 of Publication 15-T, except that the Section 5 table does not include head of household as a filing status.)

Finally, the 2022 IRS Publication 15-T also summarizes the different default tax withholding rules that will apply to payments in 2022, which generally look to whether the payer is processing 2022 Forms W-4P and whether the payee started benefits before 2022. The table below summarizes the default withholding rules:

As our clients review and update their withholding forms, procedures, and communications for these anticipated changes, please contact Audra Ferguson-Allen, Rob Gauss, Lisa Harrison, Lindsay Knowles or the Ice Miller Workplace Solutions attorney with whom you work for more information. In the meantime, we will continue to provide updates as the IRS releases more information on the implementation of these forms.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.