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.
A new Publication 15-T, Federal Income Tax Withholding Methods, to be released shortly (it will be online here) for use with the new 2020 Form W-4, will include steps employers can take to determine federal withholding. The IRS posted an early release draft on Nov. 4.
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 5. Sign the form.
The IRS explained that:
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:
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:
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.