With every new year comes some sort of changes or updates with employee payroll, and 2020 is no exception.
On December 5, 2019, the IRS issued the final version of the 2020 Form W-4 Employee’s Withholding Certificate, designed to help employees withhold the correct amount of federal taxes throughout the year. I have taken look into the NEW W-4 form so I can provide you with an easy understanding of the new requirements and a brief guide to filling out the form.
The biggest change in the W-4 form is the elimination of allowances, this was a result of the Tax Cuts and Jobs Act of 2017.
In the past it was easy:
- 1) Pick your filing status: Single, Married, Married filing Single, or Head of Household
- 2) Pick your Number of Allowances 1-10,(the higher the allowances the less taxes taken throughout the year).
However, in this revamped 5 Step form it now has employees’ detail the number of qualifying children in your household, as well as other dependents you care for, and take a closer look at other personal financial adjustments that could affect their annual taxable income.
So, with a new form comes new questions and most likely some confusion. In my payroll department as I am sure many others can relate, we often get the questions “How do I fill out the W-4?” or “What should I put on my W-4?” Employers can guide employees with completing the form, but cannot or should not provide employees with advice on deductions or additional withholding. We always recommend employees to consult with their tax preparer on how to fill out their tax forms that would be most financially beneficial.
As employers we have a few responsibilities when it comes to the employee tax withholding certificates:
- We must retain a W-4 Form for all employees.
- Current employees hired prior to 1/1/2020 do not need to fill out new forms unless they wish to change their withholding for the year.
- Any employee hired after 1/1/2020 will be required to fill out the new 2020 W-4 form.
- Any employee that claimed EXEMPT status for 2019, will need to complete the new form for the new year.
- Encourage your employees to check their withholdings or speak to their tax preparer.
Employees also have the option to use IRS Tax Withholding Estimator to help them complete the new Form W-4. If employees choose to use the estimator they will need to have the following information available to complete it accurately: Employee and Spouse data for current salary & bonus, YTD Federal Tax withheld, current federal tax withheld from last paycheck, and most recent pay period end date. Personally, I do not recommend this method because I find it to be confusing and messy and will leave your employees with more questions than answers.
Even though most of us use an automated payroll service to complete our payroll, we still need to be an available resource for our employees. Below you will find what I like to call the dummied down guide to filling out the 2020 W-4 Form.
Here is a simple guide to completing the New W-4 Form:
Step 1 (Required): Enter in all personal Information: Name, Address, Social Security Number, and Filling Status
Step 2: Complete if you have more than one job or have a spouse with income
Step 3: Complete to claim your dependents
Step 4: Complete for other adjustments
- Step 4a: Complete to have additional taxes withheld from other income NOT FROM JOBS (retirement income, interest, etc.)
- Step 4b: Complete to REDUCE your tax withholding (Use the Deduction Worksheet)
- Step 4c: Complete to withhold ADDITIONAL Taxes, for Non-Resident Alien status, or to EXEMPT yourself from withholding taxes.
Step 5 (Required): Signature and Date
*Please Note: If you complete Step 1 and 5 (ONLY) leaving Step 2, 3, and 4 blank your withholding will be computed based on your filing status standard deduction and tax rates, with no other adjustments. Completing Step 1 ONLY is equal to claiming zero exemption under previous W-4 forms.*
As an additional resource I have included a link to the FAQs on the IRS website: https://www.irs.gov/newsroom/faqs-on-the-2020-form-w-4
Questions? Feel free to reach out, I am here to help!