The IRS has released the 2021 Publication 15-T, Federal Income Tax Withholding Methods, and the 2021 Form W-4, Employee’s Withholding Certificate. The 2021 Form W-4 has few changes and is very similar to the 2020 Form W-4.
2021 Publication 15-T
Publication 15-T describes how to figure federal income tax withholding using the percentage method and the wage bracket method and describes alternative methods for figuring withholding. The publication explains how to withhold income tax based on pre-2020 Forms W-4 and 2020 or later Forms W-4.
New optional computational bridge
Adjustments for an employer to figure withholding based on pre-2020 Forms W-4 and 2020 or later Forms W-4 are described in more detail in the various worksheets. In addition, a new optional computational bridge is available. The computational bridge allows employers to treat 2019 or earlier Forms W-4 as if they were 2020 or later Forms W-4. Employers use computational procedures and data fields for a 2020 and later Form W-4 to arrive at the equivalent withholding for an employee that would have applied using the computational procedures and data fields on a 2019 or earlier Form W-4. Note:The new computational bridge only applies to pre-2020 Forms W-4 that were provided to employers before 2020. No employee may now complete a pre-2020 Form W-4.
The computational bridge may also be used for lock-in letters based on pre-2020 Forms W-4, and to convert a nonresident alien employee’s pre-2020 Form W-4 to a 2020 or later Form W-4.
Withholding on periodic payments of pensions and annuities
Employers should use Worksheet 5 and the percentage method tables in that section to figure withholding on periodic payments of pensions or annuities. If the recipient does not submit Form W-4P, Withholding Certificate for Pension or Annuity Payments, withholding on periodic payments is calculated as if the recipient were married claiming three allowances.
Withholding adjustment for nonresident aliens
Publication 15-T provides the amounts that employers should add to the wages paid to nonresident alien employees working in the United States when figuring their income tax withholding.
Help for smaller employers
The IRS Income Tax Withholding Assistant, which is an Excel spreadsheet that is designed to help small employers calculate the amount of federal income tax to withhold, has been updated for 2021. Employers that use an automated payroll system do not need to use the assistant.