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IRS Releases Form W-4 for 2020

The IRS has released the long-awaited final version of the 2020 Form W-4,  Employee’s Withholding Certificate, with major revisions designed to make accurate income-tax withholding easier for employees starting next year. In August, the IRS posted FAQs about the changes incorporated in the revised form.

These are the key points employers should note, the IRS said when the final version of the 2020 Form W-4 was released:

  • 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.
  • 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. Unlike the 2019 Form W-4, the revised form excludes withholding allowances, which were tied to the personal exemption amount—$4,050 for 2017—and are now suspended (hence the form’s name change from Employee’s Withholding Allowance Certificate). It also replaces complicated worksheets with more straightforward questions.

Thee new design changes made by the IRS are aimed at providing simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.

Employers can ask employees hired before 2020 to use the new form, but employees are not required to do so – employees should note that withholding will continue based on the form they previously submitted and may not be as accurate as using the new W-4.

The 2020 change does not modify employees’ tax liability as it is based on combined income from all sources, including second jobs, investment income and a spouse’s earnings.

What Has Changed in 2020?

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 explained 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.

Easier for Employees

Generally, the new Form W-4 is an improvement for employees. Previously, employees would complete a difficult worksheet to convert expected deductions to a number of withholding allowances. With the new form, they’ll just enter their full-year expected deductions over the standard deduction amount.”

Addressing Privacy Concerns

With the new version of the form, taxpayers can indicate their desire to have more tax withheld without having to share details with their employer. This may lead to too much withholding for some taxpayers, it will also help address concerns of those who prefer to get a refund check every year or who may have had to unexpectedly pay tax when filing this year.

RS Does Offer Resources

The About Form W-4 page on www.irs.gov has additional information about the revised form. In addition:

  • Payroll Medics provides its clients a sample Notice to Employees—What You Need to Know About the New Form W-4. This tool is designed to encourage employees to consider completing the new form to more accurately account for their annual income when determining paycheck withholding.

An Updated IRS Tax Estimator

Employees can use the IRS Tax Withholding Estimator to help them complete the new Form W‑4. The calculator, updated in August with several new functions, is designed to help employees estimate any additional withholding. By using this mobile-friendly 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.

The IRS advises it is  important to use the estimator, 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.

 

If you have questions regarding the Form W-4 for 2020 Employee Withholding you can contact us here and a friendly Payroll Medics will help you.

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