Everything you need to know about the new W-4 form
The 2020 Form W-4 was released earlier this month with only a few weeks out of the year. As the year ends, are you ready to handle the new Form W-4 in 2020? If you are struggling to figure out how this will affect you in the new year, here is a basic guide to help you get started.
WHY is there a new W-4 form?
Most employees can remember their first day on the job and fill out Form W-4, but do you really understand the form when you fill it out? The form has some complicated jargon that is not used every day. Many people fill out the form without fully understanding it, which ultimately costs them. If you fill out the form incorrectly and end up withholding too much (and getting a refund), you’re essentially giving away an interest-free loan.
The new Form W-4 is intended to be simplified so that employees can more accurately represent how much federal income tax should be withheld from their paychecks. The form uses the same underlying information as above, but removes some of the complex worksheets with simpler questions to increase accuracy.
WHO must file the new W-4?
Employees who have submitted Form W-4 in a year prior to 2020 NO I need to resubmit the form. Employers will continue to calculate withholding based on the information from the most recent W-4 form. Starting in 2020, all employees who NEW The job will need to complete the new form. The form will also need to be completed for life-changing events, such as getting married or having a baby. Anyone who simply wants to adjust their withholding amount will also need to fill out the form.
WHAT should COMPANIES do to prepare?
Since current employees will not be required to file the new W-4, all employer payroll systems will need to be updated to accommodate the existing withholding allowance calculation, as well as the new calculation. Now there will be two federal tax tables. Employees with Forms W-4 from 2019 or earlier will be required to pay taxes using the “Standard Withholding Rate Tables”. New W-4 employees will pay taxes using the new tax table. Also, step 2 of the form asks about multiple jobs. If the box is checked, the new table should be used, but if it is not checked, the standard table will be used.
WHAT is the biggest change?
The W-4 will no longer have a line to enter an allowance amount, which was tied to personal exemptions on the Personal Allowances Worksheet. This change stems from the Tax Cuts and Jobs Act of 2017 which temporarily suspends personal and dependent exemptions until 2025. The new form is now titled “Employee Withholding Certificate” vs. “Employee Withholding Allowance Certificate” . The form is now divided into 5 steps.
In addition to the new Form W-4, the IRS also published a NEW Withholding Tax Estimator. This calculator walks you through the steps to help you estimate your withholding. It’s a great tool to make sure you’re taking the correct amount of tax from each of your paychecks.
Will the new W-4 form really simplify everything?
Whether or not the new form really simplifies the process the way it is supposed to, is up for debate. Some are concerned that it will be more complicated for employees as they will have to do the multiplication themselves (step 3) and could cause errors. Tax exemption is not on the form either; however, it is still allowed. If you take a look at the fine print, it indicates that if the person is tax exempt, they should write “Exempt” in the space under 4 (c). This is something that employees may not know what to do. Also, the electronic PDF used for the OnBoarding electronic record does not include an entry for this.
What are the next best steps for employers?
Whether the form is simplified or even more complicated, employers have no choice but to prepare for the change in the limited time we have before the new year. The first steps would be to make sure your payroll systems are updated and ready by January 1, 2020. Second, it is recommended that you check with your local accountant or tax professional for guidance on how to handle gray areas of the new form. W-4.
