Editor’s note: Updated on 12.30.19 with the most up-to-date information.
Since the Tax Cuts and Jobs Act (TCJA) passed in December 2017, there’s been a whirlwind of W-4 changes aimed at both accommodating the new tax code and helping taxpayers improve the accuracy of their withholding. The 2020 form has been no exception. And after much anticipation, the IRS finally announced on Dec. 5 that the final version of the 2020 W-4 is here!
Considering the amount of changes, there have been a number of questions about the new form. To help you navigate those changes, we’ve compiled resources and information for you and your employees.
How can you help employees navigate W-4 changes?
While the 2020 version of the W-4 is designed to make withholding easier for employees, we recommend taking these steps to give your employees additional guidance:
- Notify employees. Let your employees know that the final 2020 W-4 is now available. You can learn more about the form or download it by visiting irs.gov.
- Refer employees to the IRS W-4 webinar. The IRS posted a webinar, “Understanding the 2020 Form W-4 and How to Use it to Calculate Withholding,” to their video portal. This hour-long webinar includes everything from a detailed breakdown of the W-4 changes to a Q&A session related to those changes.
- Register for the Bloomberg webinar “Form W-4 and Publication 15-T: Overcome Implementation Hurdles” on January 8, 2020 at 1 p.m. CST. This webinar will focus on finalized Form W-4 instructions, additional IRS guidance, and changes to withholding methods for 2020.
- Share the American Payroll Association page with resources to help communicate the changes to employees, including a sample letter for employers to use.
- Encourage your employees to double-check their withholding. Follow our paycheck checkup instructions so your employees can withhold the right amounts from their paychecks.
- Make sure your employees have the final 2020 Publication 15-T, Federal Tax Withholding Methods, which describes how to calculate withholding using the wage-bracket and percentage methods, and includes broader and updated tables.
- Direct employees to the IRS Tax Withholding Estimator. The IRS is encouraging taxpayers to use the Estimator to determine their withholding. To use it, your employees will need their most recent tax return and most recent pay stub from each job.
- Educate employees about potential scams. To help your employees protect their personal information, stress that you’ll only gather their information through an updated 2020 W-4. Make it clear that neither you, nor the IRS, will request personal information via email or phone. For more information to help steer clear of scams, review this resource.
- Subscribe for updates. To make sure you don’t miss updates like this, subscribe to the Payroll Data blog, and follow us on LinkedIn and Facebook.
What’s changed with the 2020 W-4?
The final version of the 2020 W-4 brings some noteworthy changes since the 2019 form, including:
- No allowances. Based on the new law, you cannot claim personal exemptions or dependency exemptions. Allowances are tied to personal exemptions and dependency exemptions, so allowances are not used to calculate withholding in the 2020 W-4.
- A new form title. Since allowances are no longer used to calculate withholding, the IRS removed “allowance” from the form title. The redesigned W-4 will now be called the “Employee’s Withholding Certificate.”
- A redesigned form. While the new form uses the same underlying information as the old form, it no longer has complicated worksheets. Instead, it uses straightforward questions aimed at making withholding calculations easier — and more accurate — for employees.
- Language updates. Some minor edits to verbiage were made throughout, most notably the addition of language under the “Your Privacy” section on page two. These updates are aimed at helping taxpayers understand exactly what checking the box in step 2(c) may do to withholdings.
- Updated wage and salary ranges. The final 2020 W-4 contains updated withholding tables that account for no allowance.
- New line numbers. Calculation for withholding using the Wage Bracket Method moved to separate worksheets, and as a result, some line numbers have changed. The IRS, however, did not change how to calculate withholding using the Percentage Method from the first 2020 draft.
- Worksheet changes. The IRS renamed Worksheet 1, “Employer’s Withholding Worksheet for Percentage Method Tables for Automated Payroll Systems.” If you’re calculating payroll manually, there are four additional worksheets for calculating withholding. For both the Percentage Method and Wage Bracket Method, there are two worksheets: one for the 2020 W-4 and the other for forms completed before 2020.
- New instructions. In the event employees need to claim they’re exempt from withholding, the IRS added instructions for this scenario. Additionally, the IRS provided instructions for calculating withholding for nonresident alien employees.
Do employees need to update their W-4 using the new form?
Understandably, you may have some confusion around when and if you should use the 2020 W-4. Any employees hired in 2020 will need to use the 2020 W-4. Additionally, if employees claim exempt status, they must submit the new form if they’re still exempt, as the 2019 form will expire on February 17, 2020.
If employees want to adjust their withholding, they will also need to submit the 2020 W-4. However, for uniformity, you may want to request that all of your employees submit the new W-4. If you make this request, make it clear that it’s not required. If employees choose to use a previously submitted W-4, their withholding will continue as is.
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