As of Jan. 1, 2020, all new employees will be required to fill out a new version of Form W-4. The changes were made to reflect new tax laws and improve the withholding process for employees.
As an employer, it's important to understand the details of the redesigned form, why the IRS made these updates and how it will affect you and your employees
What's unique about the new form?
The most obvious difference between this Form W-4 and the 2019 version is the design. The new form is a much simpler layout with only five steps on the front page. Steps one and five are the only spaces that are required to be filled out.
Employees will provide their personal information, including name and filing status. If they don't need to note multiple jobs, claim dependents or make any other adjustments, workers can skip ahead to step five, which is just providing a signature.
The second page gives general instructions and the third page is a multiple jobs worksheet, which is for employees who want to calculate their income from other jobs. Due to the Tax Cuts and Jobs Act, which was put into motion last year, the new form doesn't include withholding allowances. This was step five on the older version. Employees would put the number of personal allowances they were claiming in the space. However, with this new act, nobody will be claiming personal allowances, such as tax credits for children or other dependents.
Why did it change?
The main motivation for this change was to keep the form in line with new tax laws and make it easier to fill out. It also provides better privacy for workers.
The personal allowances worksheet was confusing and often overlooked. Employees had to take their expected deductions and convert them to a number of withholding allowances. But now that allowances are gone, they can just enter the number of expected deductions on the first page and move on.
The new form will also give employees the freedom to keep certain information private from their employer. For example, in the old version, employees were required to provide the amount of income they received from other jobs in order to determine how much additional tax would be withheld. Now, if a worker doesn't want to provide that information, they won't have to. Instead, they can use the Tax Withholding Estimator on the IRS website to figure out the amount of tax to withhold, then enter that number as part of Step 4.
Additionally, if any of these other factors apply to an employee, they should consider using the IRS withholding estimator to fill out their W-4 properly:
- They only plan on working part of the year.
- They earn income from self-employment.
- They are subject to Medicare tax.
What does this mean for employers?
Employers won't be required by the IRS to have their current employees fill out new W-4 forms. Though, when a worker wants to adjust their withholdings, they'll need to do so with the new version.
If an employee fails to fill out the current W-4 form, they'll automatically be filed as single with no adjustments. It's the employer's responsibility to provide the new form to their employees so that they can set up necessary withholdings.
Companies will have to update their payroll systems in order to accommodate the old and new methods for withholding calculation. This could get confusing, depending on the type of payroll software being used. Therefore, employers might ask all of their employees to fill out the new form. But they cannot force this upon any workers who were paid for the first time before 2020.
Interested in learning more about the 2020 form W-4? Connect with us at Triton today!