The new Form W-4 doesn’t have to be confusing.
The IRS released the long-awaited final version of the 2020 Form W-4, retitled Employee’s Withholding Certificate, with major revisions designed to make accurate income-tax withholding easier for employees starting next year.
These are the key points employers should note:
- All new employees hired as of Jan. 1, 2020, must complete the new form.
- Current employees are not required to complete a new form but can choose to adjust their withholding based on the new form. If an employee hasn’t had a major life change such as getting married or having a baby, they probably haven’t filled out a W-4 in a very long time. Now is the time.
- Any adjustments made after Jan. 1, 2020, must be made using the new form.
- Employers can still compute withholding based on information from employees’ most recently submitted Form W-4 if employees choose not to adjust their withholding using the revised form.
The IRS updated the W-4 form to reflect tax code changes ushered in by the Tax Cuts and Jobs Act, which took effect last year. Personal exemptions have been eliminated. These exemptions allowed for deductions against a taxpayer’s personal income ($4,050 for 2017), which reduced their taxable income, and therefore, their federal income tax. These exemptions were tied to allowances, but since exemptions are now gone, the need to determine the number of allowances is gone too. It also replaces complicated worksheets with more straightforward questions.
Another suggestion for employers, the new form requires tax information that the employee might not have with them so offer to let them take it home and fill it out.
Several organizations have published letters that employers can freely customize and share with all employees. Feel free to download and use: https://www.americanpayroll.org/docs/default-source/2019-forms-and-pubs/19m12-2020_form_w-4_letter.pdf
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 with five possible steps for declaring additional income, so employees can adjust their withholding with varying levels of accuracy, privacy and ease of use. The five steps are:
- Step 1. Enter personal information.
- Step 2. Indicate multiple jobs or if spouse works.
- Step 3. Claim dependents.
- Step 4. Make other adjustments including for:
- Step 4(a): Investment and retirement income.
- Step 4(b): Deductions other than the standard deduction.
- Step 4(c): Any extra tax withholding per pay period.
- Step 5. Sign the form.
The IRS details that:
- The only two steps required for employees submitting a new form are Step 1, where they enter personal information such as their name and filing status, and Step 5, where they sign the form.
- 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 if they complete them. Employees, however, can adjust their withholding in Step 4(c) without sharing additional information.
If an employee uses the IRS Tax Estimator or the Multiple Jobs Worksheet to calculate income from another job, the amount is placed in step 4(c). Employees who just want additional withholding should also use 4(c). The space below step 4(c) is used for employees to identify that they are nonresident aliens or are exempt from paying taxes.
Employees can use the IRS Tax Withholding Estimator to help them complete the new Form W‑4. The calculator is designed to help employees estimate any additional withholding. By using this tool, employees can more easily account for higher marginal tax brackets where both spouses work, additional income, and credits and deductions, and predict a tax refund or amount owed, as well as align their withholding as closely as possible to their actual tax obligation.
It’s especially important to use the estimator, the IRS advised, if an employee:
- Faced an unexpected tax bill or a penalty after filing a tax return last year.
- Has or will experience a change in marital status, dependents, income or jobs this year.
Anyone who wants to use the estimator will need to be prepared with similar information that’s requested on the W-4 worksheets. You should have the following:
- Your most recent pay stub. It should include the amount of federal income tax withheld so far in the current tax year (2019).
- A completed copy of your most recent tax return. It will help with estimating income and other items for the current tax year.
It’s important for anyone using the estimator to know that it will only be as accurate as the information entered. If you throw in a “best guess” for the requested information, the result will not be as precise. The withholding estimator will spit out an approximation of what someone’s tax liability will be for their tax return and whether their current withholding is enough to meet that obligation. Depending on a person’s situation, this information may cause them to make changes to their W-4.
In summary, the IRS recommends that employees with the following profiles check their withholding:
- Two-income families.
- People with two or more jobs at the same time or who only work for part of the year.
- People with children who claim credits like the child tax credit.
- People who itemized deductions in the previous tax year.
- People with high incomes and more complex tax returns.
Finally, if you fill out a new W-4, be sure to submit it as soon as possible in the new year. You’ll want the adjustments to take effect sooner rather than later, so the right amount of taxes are withheld from your paycheck for as much of the year as possible.
The IRS provides the following questions and answers regarding the new W-4 that you may find helpful: FAQs on the 2020 form W-4.
The new Form W-4 doesn’t have to be confusing. If you have any questions let HR On-Call, LLC help you or your employees avoid any surprises at tax time.
A little more about us: Susan Arnold, owner and lead HR Consultant at HR On-Call, LLC. Susan has 20+ years of HR experience and provides a HR presence to business organizations without the overhead expense of a full-time employee. Susan helps business owners improve employer/employee relationships and allows them to focus on their business while resting assured that they are in full compliance with state and federal law. Areas of expertise:
- Reduce Employer Risk and Liability
- Customized Employee Handbooks
- Performance Reviews
- Improve Employee/Employer Relationships
- Background Checks
- Personality Assessments
- Guaranteed EEO Compliance
- Employee Retention
- Recruitment / Hiring
- Employee Discipline/Discharge
Susan is passionate about her customers and listens to their needs. If you are interested in any of the details above or would like more information about her services, please contact Susan! If you have questions on how your specific policy should read or need help navigating a certain instance, contact HR On-Call, LLC.