In August, the Internal Revenue Service issued a major revision to the 2020 W-4 form. By releasing the nearly-finalized version now, the IRS hopes it will give employers and payroll processors extra time to learn about it and update their systems for next year. Here’s what you need to know.
Background on W-4s
The W-4 is an IRS form that employees complete so employers know how much money to withhold from their paychecks for federal taxes. The form calculates “allowances.” The more allowances your employees claim, the less you can withhold from their paycheck.
Why the change?
The change follows the Tax Cuts and Jobs Act, which eliminated many traditional exemptions and deductions. As a result, you may have ended up owing taxes this year because you didn’t have enough money withheld from your paychecks last year. The revised form is supposed to help prevent that kind of miscalculation.
When does the new form take effect?
December 31, 2019.
How does it work?
The new form replaces complex worksheets with more straightforward questions. This should make it simpler for employees to calculate a more accurate withholding.
Are all current employees required to submit a new Form W-4?
No. Employees who submitted Form W-4 in any year before 2020 are not required to submit a new form because of the redesign.
Who should use the new form?
Your new 2020 employees, and any current employee who wants to adjust their current withholdings.
Otherwise, employers should continue to withhold based on the information from an employee’s most recently submitted Form W-4.
Should we encourage employees to review their current withholdings?
Yes. Think of it as a “paycheck checkup.” The IRS launched a new Tax Withholding Estimator. It is supposed to make it easier to calculate an amount to withhold that won’t surprise you at tax time. I recommend that your employees use this tool to help them determine if they should make adjustments to their current withholdings, and complete the new W-4 form.
With this change, you may have questions. “How do employees correctly complete the form?” and “Will the new form impact my current payroll software/systems?” are two questions we expect many of you will ask.
If we can be of service, please don’t hesitate to reach out to us about these or any other questions related to the new W-4.
