Earlier this month, the IRS released a new Form W-4 to be used starting January 1, 2020.
What this means for employers
- All new employees hired on or after January 1, 2020 must use the new form.
- Existing employees are not required to submit a new form, but may do so if they choose.
- Any withholding change requests submitted on or after January 1, 2020 must use the new form.
- The IRS Tax Withholding Estimator can be utilized for employees to perform a “paycheck checkup.”
What is Form W-4?
Employees have long used the IRS Form W-4 to establish marital status and withholding allowances to adjust their federal income tax withholding to match their anticipated full-year income tax liability.
What this means for employees
Even if an individual’s tax situation has not changed, the IRS recommends performing a “paycheck checkup” to see if adjustments are needed to current amounts withheld. The IRS Tax Withholding Estimator is available to conduct this checkup and should be updated to account for the 2020 tax tables in early January. The Estimator tool works best if the employee has a copy of his/her most recent pay stub and tax return.
Background
Prior to the Tax Cuts and Jobs Act (TCJA), most withholding allowances were based on personal exemptions (i.e., one each for the employee, any spouse and dependents). Beginning in 2018, the TCJA made significant changes to tax rates, deductions, tax credits and personal exemptions, which changed to zero. The IRS released new withholding tables for 2018 and 2019, but Form W-4 remained largely unchanged until now.
New Form
The 2020 Form W-4 is presented on a single, full page, followed by instructions, worksheets and tables. In place of withholding allowances, the new W-4 includes a process for declaring additional income, so employees can adjust their withholding with varying levels of accuracy, privacy and ease of use.
This process is outlined in the following five steps:
- Enter personal information (Required)
- Indicate multiple jobs or if spouse works (Optional)
- Claim dependents (Optional)
- Make other adjustments including for (a) interest, dividends and retirement income, (b) deductions other than the standard deduction, and/or (c) any extra tax withholding per pay period (Optional)
- Sign the form (Required)
If Steps 2, 3 or 4 apply to employees and they choose to provide that information, their withholding will more accurately match their tax liability. However, employees can adjust their withholding in Step 4(c) without sharing additional information.
Helpful links:
2020 W-4 Form
Income Tax Withholding Assistant for Employees
Tax Withholding Estimator