Yes, after years of talking about doing it, the IRS has officially overhauled the Form W-4 for 2020. The reality is, while many of us are accustomed to its former format and calculations (set back in 1987), there was often complexity and misunderstanding.
The redesign reflects changes to the federal tax code from the 2017 Tax Cuts and Jobs Act. The update, the IRS said, “reduces the form’s complexity and increases the transparency and accuracy of the withholding system.”
“When you can’t change the direction of the wind, it’s time to adjust your sails.” – H. Jackson Brown Jr.
While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees. The most difficult part of the transition will be growing accustomed to the new layout.
Highlights of 2020 Form W-4 include:
- No more withholding allowance. Allowances are no longer used for the redesigned Form W-4. This change is meant to increase transparency, simplicity, and accuracy of the form. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.
- Not all employees have to fill out the 2020 W-4 form.
- Only employees whose first paycheck is in 2020 need to use the newly designed form.
- Your current employees who don’t want to change anything on their form don’t need to fill out the new version. Employers will continue to compute withholding based on the information from the employee’s most recently furnished Form W-4.
- These employees must use the revamped 2020 Form W-4:
- Employees with first paychecks in 2020.
- Employees who want to change something on their pre-2020 Form W-4 – they will need to adjust their withholding using the redesigned 2020 form.
- Any employees paid prior to 2020 who want to adjust withholding from their pay dated January 1, 2020 or later must use the redesigned form.
- Important note regarding the request for employees paid before 2020 to furnish new Form W-4: You may ask, but as part of the request you must explain that:
- They are not required to furnish a new Form W-4, and
- If they do not furnish a new Form W-4, withholding will continue based on a valid form previously furnished.
- New employees (first paid after 2019) who do not furnish a Form W-4 are single filers with no other adjustments. This means that a single filer’s standard deduction with no other entries will be taken into account in determining withholding. This treatment also generally applies to employees who previously worked for you and were rehired in 2020 and did not furnish a new Form W-4.
- For those employees who furnished forms before 2020 and who do not furnish a new one after 2019, you must continue to withhold based on the forms previously furnished. You are not permitted to treat employees as failing to furnish Forms W-4 if they don’t furnish a new Form W-4. Note that special rules apply to Forms W-4 claiming exemption from withholding.
- Withholding calculation assistance is available. The Internal Revenue Service has launched an online assistant designed to help employers, especially small businesses, easily determine the right amount of federal income tax to withhold from their workers’ pay. Use the Income Tax Withholding Assistant if you typically use Publication 15-T to determine your employees’ income tax withholding.
- Adjustment for nonresident aliens still exists, and there are IRS instructions that can be found in the 2020 Publication 15-T, Federal Income Tax Withholding Methods, on the additional amounts that should be added to wages to determine withholding for nonresident aliens. Additionally, nonresident alien employees should continue to follow the special instructions in Notice 1392 when completing their Forms W-4.
The new 2020 Form W-4 can be used now with respect to wages to be paid in 2020.
As with any transition to something new, there is a learning curve and adjustment period. In the long run, this new form should provide employers with a more straight-forward approach. For more information, visit the IRS FAQs on the 2020 W-4 Form page.
Please contact a K·Coe tax advisor with questions or issues.