On December 5, 2019, the Internal Revenue Service (IRS) issued the final redesigned 2020 Form W-4, Employee's Withholding Certificate, to incorporate changes pursuant to the Tax Cuts and Jobs Act of 2017. The new form is intended to reduce the complexity and increase the transparency and accuracy of the withholding system. If you're like most employers, you probably have questions.
What is the new W-4 Form?
Employees fill out Form W-4 when they start a new job. On the form, employees enter their contact information and Social Security number, report their filing status, and claim dependents.
Employers use Form W-4 to determine how much to withhold from an employee's gross wages for federal income tax. You need the employee's completed Form W-4 to use the withholding tables in IRS Publication 15.
Among the big changes to the Form W-4 are new boxes for workers to indicate they hold multiple jobs or are part of two-earner households. The new Form W-4 also no longer uses allowances, but includes lines to list dollar values to be used to calculate the withholding amount.
The form contains the following five-step process for determining employee withholding:
Step 1: Enter personal information.
Step 2: Account for multiple jobs and whether spouse works.
Step 3: Claim dependents.
Step 4: Make other adjustments.
Step 5: Sign and date under penalties of perjury.
What does this mean for employers?
In general, new hires who receive their first paycheck after 2019 must use the 2020 Form W-4 when they begin working at a business. Your other employees don't need to fill out the new form. However, employees who want to update their withholdings and need to change W-4 forms must use the 2020 version.
To help further address both individual and employer questions about the new form, the IRS released frequently asked questions (FAQs) in August 2019. Among other issues, the FAQs clarify the following:
- An employer will not need two separate payroll systems to calculate income tax withholding amounts (FAQ 15).
- New employees who fail to submit a Form W-4 after 2019 will be treated as single filers with no other adjustments (FAQ 16).
- Beginning in 2020, new employees will be required to complete new Form W-4 (FAQ 17).
- Existing employees (those hired prior to 2020) who want to adjust withholding from their pay dated January 1, 2020, or later will be required to complete a new Form W-4 (FAQ 18).
- Existing employees with the "old" Form W-4 on file are not required to complete a new Form W-4, though employers may ask employees to complete a new Form W-4 (FAQ 19).
Have more questions about understanding the new Form W-4 or communicating these changes to your employees? Don't worry - we are here to help!
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