Have you just started getting acclimated to the effects of the Tax Cuts and Jobs Act? You may have the updates to the tax withholding tables down pat, but there’s another curveball coming each employer’s way. The long-awaited new W-4 form is here to shake up how you handle income tax withholding.
If you’re like most employers, you probably have questions. What is the IRS new W-4? How does it differ from previous versions of Form W-4? Find out what you need to know to prepare for the new form.
What is the new W-4 form?
The 2020 Form W-4, Employee’s Withholding Certificate, is an updated version of the previous Form W-4, Employee’s Withholding Allowance Certificate. The new IRS W-4 complements the changes to the tax law that took effect in 2018. This new design aims to simplify the process of filling out Form W-4 for employees and improve tax withholding accuracy.
Employees fill out Form W-4 when they start a new job. On the form, employees enter their contact information and Social Security number, report their filing status, and claim dependents.
Employers use Form W-4 to determine how much to withhold from an employee’s gross wages for federal income tax. You need the employee’s completed Form W-4 to use the withholding tables in IRS Publication 15.
New hires who receive their first paycheck after 2019 must use the 2020 Form W-4 when they begin working at a business. Your other employees don’t need to fill out the new form. However, employees who want to update their withholdings and need to change W-4 forms must use the 2020 version.
If you’re familiar with old versions of the form, you’re probably thinking that this all sounds pretty much the same. So, how is the new W-4 different?
New IRS W-4 form vs. old: What’s the difference?
There are a few changes with the Form W-4 2020 version that go beyond having a new name and layout.
Form W-4, now just called Employee’s Withholding Certificate, is divided into five steps:
- Enter Personal Information
- Multiple Jobs or Spouse Works
- Claim Dependents
- Other Adjustments
- Sign Here
Like previous versions of Form W-4, there is a multiple jobs worksheet and deductions worksheet on the new W-4 form.
But unlike previous versions, the new W-4 form has done away with withholding allowances. Employees can no longer claim withholding allowances.
In the past, employees could claim withholding allowances to lower the amount of federal income tax withheld from their wages. The more withholding allowances an employee claimed, the less you would withhold in federal income tax.
Now, employees do not have the option to claim withholding allowances. Instead, they can claim dependents or use the deductions worksheet to lower the amount of taxes withheld.
What these changes mean for employers
So, what does this seemingly little change mean for employers?
If you were used to using the old income tax brackets, you know that you would locate the employee’s pay frequency, filing status, gross wages, and withholding allowances.
But for employees you hire in 2020 and beyond, you can throw the old tax brackets out the window.
Like previous income tax withholding tables, there are two methods for calculating federal income tax withholding—percentage and wage bracket methods. However, the method you choose now depends on how you process payroll:
- Percentage Method Tables for Automated Payroll Systems
- Wage Bracket Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later
Keep in mind that the previous withholding tables with withholding allowances are still available for your employees with pre-2020 W-4 forms.
If you handle payroll manually, use the wage bracket method tables. There’s a draft on the IRS’s website for reference. Locate the “Standard withholding” rate associated with the employee’s wages, filing status, and payroll period. If the employee has multiple jobs or a working spouse, use the “Form W-4, Step 2, Checkbox withholding” rate.
Use the “Standard withholding” rate if employees only fill out steps 1 (Enter Personal Information) and 5 (Sign Here). Use the “Form W-4, Step 2, Checkbox withholding” rate if the employee checks the box in Step 2 (Multiple Jobs or Spouse Works).
Employees can request employers withhold more in taxes than the “Standard withholding” or “Form W-4, Step 2, Checkbox withholding” rates on Form W-4. Employees can request this in Step 4(a) and 4(c). If an employee requests extra withholding each pay period, make sure to account for that amount.
Employees can request employers withhold less in taxes than the universal rates by entering the amount in Step 4(b) after using the deductions worksheet or claiming dependents.
Q&A recap about the new form
If you still have questions about the new W-4 form, take a look at our Q&A section below.
1. What is the purpose of the redesign?
The purpose of the new IRS W-4 form is to better match the changes to the Tax Cuts and Jobs Act. The new form supports the changes that were made to the withholding table brackets.
Another reason for the redesigned form is ease-of-use. The IRS hopes that the new form will be easier for employees (and employers) to understand. And, the form is supposed to boost tax withholding accuracy.
2. Are withholding allowances gone?
Yes, withholding allowances are gone. Employees filling out the 2020 Form W-4 can no longer claim withholding allowances.
3. Do all employees need to fill out a new W-4 form?
No. Only new employees whose first paycheck is in 2020 must use the new W-4 form. Be sure to distribute the correct form to your new hires.
Employees must fill out the 2020 version of the form if they decide to change their withholdings.
4. What happens if a new hire doesn’t fill out the form?
Treat new hires who do not fill out the new form as single filers with no other adjustments. Use the standard withholding rate for these employees.
5. Can employers force their employees to submit a new form?
Although you can ask your employees who are first paid before 2020 to submit a new form, you cannot force them to.
If you ask your employees to fill out a new form and they are not required to, you must explain two things:
- They are not required to do so
- Their withholding will continue to be based on their previously submitted Form W-4 if they do not fill out the 2020 version
Again, you cannot force employees first paid before 2020 to fill out a new form. And if these employees refuse to do so, you must continue using their previous form.
6. What does the IRS form look like?
You can view the 2020 Form W-4, Employee’s Withholding Certificate, on the IRS’s website.
7. Do employees need to use the tax withholding estimator, too?
The IRS’s tax withholding estimator, or calculator, helps workers determine their tax liabilities before filling out their withholding forms.
To increase the accuracy of the new form, the IRS encourages employees to use the tax withholding estimator. Employees can use this by gathering recent pay statements and last year’s income tax return.
Tired of keeping up with changing tax laws on your own? With Patriot’s online payroll, you don’t have to worry about manual calculations again. Our software is updated to reflect changes to taxes. Get your free trial now!
This is not intended as legal advice; for more information, please click here.