IRS Overhauls Form W-4 for 2020 Withholding
On Dec. 5, the IRS released the long-awaited final version of the 2020 Form W-4, retitled Employee's Withholding Certificate, with major revisions designed to make accurate income-tax withholding easier for employees starting next year. In August, the IRS posted FAQs about the changes incorporated in the revised form.
These are the key points employers should note, the IRS said when the final version of the 2020 Form W-4 was released:
"The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors," IRS Commissioner Charles Rettig said. Changes made since the last draft include minor edits and added language on page 2 under "Your Privacy."
"Employers can ask employees hired before 2020 to use the new form, but [employees] are not required to do so," said Jon Barber, senior vice president of tax policy and research at Ayco, a financial counseling and investment management firm. Employers should, however, "explain that withholding will continue based on the form they previously submitted and may not be as accurate as using the new W-4."
Alice Jacobsohn, senior manager of government relations for the American Payroll Association (APA), a payroll industry trade group, noted that:
Are employers required to have employees complete a new W‑4 each year?
The 2020 Form W-4 is presented on a single, full page, followed by instructions, worksheets and tables. In place of withholding allowances, the new W-4 includes a process with five possible steps for declaring additional income, so employees can adjust their withholding with varying levels of accuracy, privacy and ease of use.
The five steps are:
Enter personal information.
Indicate multiple jobs or if spouse works.
Make other adjustments including for:
The IRS explained that: Sign the form.
"If an employee uses the IRS Tax Estimator or the Multiple Jobs Worksheet to calculate income from another job, the amount is placed in step 4(c)," Jacobsohn said. "Employees who just want additional withholding should also use 4(c)."
The space below step 4(c) is used for employees to identify that they are nonresident aliens or are exempt from paying taxes. "If you use an electronic form, developers are instructed to provide a place to enter the information, such as a check box," Jacobsohn said.
An important consideration for HR and payroll departments, said Jamal Ayyad, a small business tax advocate at online payroll firm SurePayroll, is that "they may want to let new employees take the form home rather than complete it on their first day as is customary, because tax information is required that the employee might not have readily available."
'HR may want to let new employees take the form home rather than complete it on their first day.'
Easier for Employees
"Generally, the new Form W-4 is an improvement for employees," said Pete Isberg, vice president of government relations at payroll and HR services firm ADP. "For example, previously, employees would complete a difficult worksheet to convert expected deductions to a number of withholding allowances. With the new form, they'll just enter their full-year expected deductions over the standard deduction amount."
Not requiring employees to submit the new W-4 will ease HR's burden, but it also means that "employers will need to program their payroll system to accommodate the existing withholding calculation, as well as the new method," Barber said. However, "companies' payroll software will not necessarily require two different systems for the two different forms, since the same set of withholding tables will be used for both," he explained.
Addressing Privacy Concerns
With the new version of the form, taxpayers can "indicate their desire to have more tax withheld without having to share details with their employer," said Mike Trabold, director of compliance at Paychex, an HR technology services and payroll firm. Although this may lead to too much withholding for some taxpayers, "it will help address concerns of those who prefer to get a refund check every year or who may have had to unexpectedly pay tax when filing this year."
A worksheet to help taxpayers with the new form "will not be provided to the employer, further assuring privacy," Trabold noted.
Spread the Word
The About Form W-4 page on www.irs.gov has additional information about the revised form. In addition:
Employees can use the IRS Tax Withholding Estimator to help them complete the new Form W‑4. The calculator, updated in August with several new functions, is designed to help employees estimate any additional withholding. By using this tool, which the IRS says is mobile-friendly and uses plain language, employees "can more easily account for higher marginal tax brackets where both spouses work, additional income, and credits and deductions, and predict a tax refund or amount owed, as well as align their withholding as closely as possible to their actual tax obligation," Barber noted.
It's especially important to use the estimator, the IRS advised, if an employee:
This article provided by the Society for Human Resource Management (SHRM).