How the new W-4 impacts you and your employees
In the wake of the 2017 Tax Cuts and Jobs Act, the IRS has substantially changed Form W-4 for 2020. The new form is designed to more accurately capture how taxable wages are calculated on the Individual Income Tax Return.
Beginning on January 1, 2020, new hires must use the new 2020 W-4, officially called Form W-4 Employee’s Withholding Certificate. Employees hired prior to January 1, 2020 do not need to fill out the new form unless they want to change their withholding. By January 1, 2021, all employees will need to complete the new form. You may want to encourage employees to do a paycheck checkup to avoid surprises come tax time. The IRS has provided a flyer that you can use to encourage your employees to do so.
A heads-up to employers: The form is different enough that you may find employees need more time than usual to complete the form. This new version of the W-4 is more akin to filling out a tax return and may require the employee to confer with their spouse or even possibly their tax return preparer. The American Payroll Association developed a brief explanation for your employees (.DOCX download) that you may distribute as you see fit. We hope it helps.
For clients who use our digital onboarding tools, the new W-4 should be up and accessible to your new hires by the January 1, 2020 start date of this new form.
A few changes in the new W-4 that you should be aware of:
- Step 1 has a new filing status: Head of Household
- Steps 2, 3, and 4 now ask questions of the employees about their tax withholding, dependents and filing status
- Employees are required to put dollar values for claiming dependents
- Employees are asked to provide adjustment amounts for other incomes or deductions
- There are new additional worksheet attached, including Deduction and Multiple Jobs Worksheets, as well as instructions on how to fill out everything
Fortunately, the IRS has provided a tax estimator to help employees figure this all out.
There will be a learning curve for everyone on this. As of the time of this writing, Publication 15-T, the Federal Income Tax Withholding Methods publication that goes hand in hand with the W-4, is still in draft form. Take some time to familiarize yourself with this new form and how it works. You may even want to try the Tax estimate calculator and new form yourself just to get a sense of what your employees will experience. This will allow you to help your employees navigate any changes to the federal withholdings from their paychecks.
Here are some resources for you, the employer, as we set off on this new adventure together, brought to us by the IRS and our changing tax laws:
