The IRS has officially released the final version of the 2020 Form W-4, retitled Employee’s Withholding Certificate. Form W-4, also known as W4 Form 2020, was redesigned to reflect changes to the federal tax code that went into effect with the Tax Cuts and Jobs Act and make it easier for employees to calculate accurate income tax withholding in 2020 and beyond. According to the IRS, “The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system…it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.” For example, allowances are no longer used on the redesigned Form W-4 since personal exemptions have been eliminated under the new law.
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Though the new design is intended to make things easier, it’s still a tax form with which HR and payroll professionals need to familiarize themselves. The American Payroll Association has warned employers that the new form may be challenging for employees at first and has offered a sample letter that businesses can use to help explain W4 Form 2020 in a way that balances “the desire to be helpful to employees with the understanding that [employers] need to be careful not to give tax or legal advice.”
Quick look at the new federal Form W-4
The 2020 Form W-4 is now presented on a single, full page that guides workers through five steps that “aim to account for all sources of income” including multiple jobs, a spouse’s work income, self-employment income, and any income from investments, dividends, and retirement. The form itself is followed by instructions, worksheets supporting steps 2 and 4, and tax tables.
Here’s a PDF of the new 2020 Form W-4
Using the new form, employees can adjust their federal tax withholding by following these steps:
1. Personal Information. Enter personal information including name, address, Social Security number, and filing status.
2. Multiple Jobs. Note if you hold multiple jobs or are married filing jointly and your spouse also works. Language included on the form explains that the correct amount of withholding depends on income earned from all of these jobs.
3. Dependents. Claim the number of dependents under age 17 (multiply by $2,000) and other dependents (multiply by $500) and enter the total if income will be $200,000 or less or $400,000 or less if married, filing jointly.
4. Optional—make other adjustments. This is a chance to increase withholding amounts to account for additional sources of income including investment and retirement income, any deductions other than the standard deduction, and any extra tax withholding the employee would like withheld each pay period.
5. Signature. Employees must sign the form to ensure its validity. In this section, the employer will also add in the business name and address, first date of employment, and the employer’s identification number (EIN).
Who needs to file 2020 Form W-4
According to the IRS, all new employees hired as of January 1, 2020, must complete the new Form W-4. Current employees are not required to complete a new form unless they want to adjust their withholding amounts, in which case they must do so using the W4 2020. If an existing employee does not fill out a new form, employers will continue to calculate withholding amounts based on the most recent W 4 on file.
The IRS has issued a revised Publication 15-T, Federal Income Tax Withholding Methods, for use with 2020 Form W-4 so employers can accurately determine federal withholding.
It’s also recommended that payroll and human resources departments work together to adjust hiring and onboarding procedures to accommodate the new w4 2020 requirement. Many industry experts note that employees will need extra time to complete this form and that it may be helpful to permit new employees to take Form W-4 home for completion.
Why employers should encourage employees to file a new W-4
The IRS encourages workers to complete a “paycheck checkup” to ensure that paycheck withholdings match the amount of tax owed. Tax experts warn against having too little money deducted resulting in a big bill and possible penalties. They also caution against deducting too much and getting a huge refund, because that is essentially providing the government with a no-interest loan.Despite the benefits of the new W4 Form 2020, some workers may still be afraid of sharing details about additional income sources with their employers. In this case, workers can use the online tax withholding estimator tool from the IRS to make those calculations. This allows employees to bypass Lines 4a and 4b and instead enter their desired withholding amount on Line 4c, Extra Withholding.
A note about state income tax withholding
Businesses should also be aware that some states still use withholding allowances to determine state income tax withholding. Five states have created their own W-4 rather than use the new federal 2020 W-4 form including Idaho, Minnesota, Montana, Nebraska, and South Carolina. Be sure to research your state regulations in order to accurately run payroll, make state income tax withholdings, and maintain compliance.
Keep up with changing tax laws with help from Asure
When your business is growing, you need software and services that work as hard as you do. That’s why busy entrepreneurs and business executives rely on Asure to maintain compliance, keep accurate records, determine proper withholdings, and make timely payments. Asure’s dedicated professionals and tax experts monitor federal and state regulations that affect your growing business including payroll, tax, and benefits administration.
Discover how Asure helps businesses like yours minimize the payroll and tax administrative burden so you can focus on attracting, developing, and retaining great people in a way that aligns to financial growth.
Read Key Changes & Trends that will Impact your HR Strategy in 2020 for more about what to watch out for in 2020 employment law.