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What You Should Know About The New Form W-4
On December 5, 2019, the IRS released the final version of the 2020 Form W-4. With a form change of this nature, employers can easily start to feel overwhelmed by the amount of new information being released. That’s why we’ve pulled together the basics of what you need to know about the new Form W-4:
Changes To Form W-4
According to IRS Commissioner Charles Rettig, the “primary goals of the new design are to provide simplicity, accuracy, and privacy for employees while minimizing the burden for employers and payroll processors.” The new, single-page Form W-4 reflects the tax code changes implemented by the Tax Cuts and Jobs Act of 2017.
The revised form also excludes withholding allowances and has been replaced with a five-step process for declaring additional income. Each step provides clear and concise instructions so employees can adjust their withholding however they choose. Here are the five steps in place of withholding allowances:
Step 1. Enter personal information
Step 2. Indicate multiple jobs or if the spouse works.
Step 3. Claim dependents.
Step 4. Make other adjustments including for:
Step 4(b): Deductions other than the standard deduction.
Step 4(c): Any extra tax withholding pay per period.
Step 5. Sign the form.
Who Should Complete A New Form W-4?
Any employee hired after January 1, 2020, or who wishes to make changes to their withholdings in 2020 is required to file a new Form W-4.
Any employee hired before January 1, 2020, is not required to submit a new Form W-4 if they don’t wish to change their withholdings. However, it’s important to note that employees who don’t want to submit a new form will continue to have their withholdings based on their previously submitted Form W-4.
How Often Should W-4s Be Updated?
According to the IRS, employers should remind employees each year to submit a new Form W-4 if they had a change in withholding events during the year or are claiming exemption from withholding. Furthermore, the IRS recommends all employees should conduct a personal “paycheck checkup” to determine if they should fill out the updated Form W-4 or not.
To conduct a paycheck checkup, employees can use the IRS Tax Withholding Estimator to see if they need to make adjustments to their current withholdings*. To use the Estimator, they’ll need copies of their most recent pay stub(s) and tax return(s).
Employees who have experienced the following life changes or will experience these life changes in 2020 are highly encouraged to use the Estimator:
- Birth of a child
- Purchase of a home
Individuals with complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax, to conduct their paycheck checkup.
*Currently, the IRS Tax Withholding Estimator is still using 2019 tax tables. It is expected to be updated to the 2020 tables in early January 2020.
How Long Does it Take for a New W-4 to Go Into Effect?
After a W-4 is received, employers should put the new withholding amount into effect no later than the start of the first payroll period ending on or after the 30th day from when the employee submitted the replacement Form W-4. Employees can contact their payroll department for more details.
How Employers Can Prepare For The New Form W-4
The American Payroll Association has published a sample letter that employers can use to explain Form W-4 changes to employees. Be sure to notify your employees of the upcoming changes and let them know now is the time to adjust their Form W-4. If you use an automated system to submit changes to Form W-4, make sure your employees can make adjustments digitally and they know how to make withholding adjustments within the system. The new Publication 15-T, Federal Income Tax Withholding Methods*, will include steps employers can take to determine federal withholding from employees’ wages.
*The new Publication 15-T is expected to be released in mid-December 2019. The IRS posted an early draft on November 4, 2019, which can be accessed here.
Resources for Employers
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