The IRS modified Form W-4 to simplify the withholding systems. Employees hired as of Jan.1, 2020 or current employees that would like to make changes to their withholding in 2020 will be required to complete the new form. Current employees who are not making any changes in 2020 and have filled out the W-4 anytime in the past are not required to complete a new W-4.
What has changed?
The most notable change for the 2020 W-4 is the elimination of withholding allowances. The new W-4 is broken down into five sections:
- Personal information
- Accounting for multiple jobs
- Claiming dependent amounts
- Recording additional income and deductions
In most instances, employees who fill out the form are only required to fill out steps 1 and 5 unless steps 2-4 apply. However, completing the form in its entirety will increase accuracy.
Why has this changed?
In 2017, the Tax Cuts and Jobs Act was passed making changes to income tax rates, deductions, credits, and withholding. The new W-4 reflects these changes. The revisions aim at making each employees’ tax withholdings as accurate as possible.
How this affects your business
The new form is meant to be easier for your employees to have accurate withholding from their paychecks. The systems you use for payroll processing will need to be programmed to accommodate both the existing withholding calculation and the new calculation. For Payroll Systems’ clients, this is already configured in the software.
For more information, you can access a tax withholding estimator provided by the IRS here, as well as Publication 15-T, Federal Income Tax Withholding Methods, that will explain steps employers can make to determine federal withholding.