The much-anticipated IRS Form W-4 (Employee’s Withholding Certificate) redesign is finally here! However, its launch has led to confusion for many. For instance, did you know that many workers won’t need to file a new W-4 at all? Or that the new form no longer uses withholding allowances?
Since the enactment of the Tax Cuts and Jobs Act’s initial changes to the form in 2017, the IRS postponed the release of a new form in 2018 and 2019 due to time constraints and the intense apprehension of the payroll community. After two drafts this past summer, however, the IRS issued the final Form W-4 in December. Let’s take a deeper dive into the changes you’ll find and the critical requirements for filing smoothly in 2020.
2020 Form W-4 Differences
Let’s start with the basics. The primary differences found in the new W-4 form are aimed at improving ease of filing for employees and addressing privacy concerns. With previous versions, employees faced complicated worksheets to configure deductions into withholding allowances. With the new form, they just enter their expected annual deductions divided by the standard deduction amount… simple as that.
In addition, the new form allows employees to indicate whether or not they’d like to have taxes withheld without having to share details with their employer to ensure greater transparency and accuracy of withholding returns. As previously stated, not all members of your labor force will need to fill out new forms. According to the legislation, new employees who have completed the form before 2020 are not required to complete another.
Moreover, if an employee only fills out Step 1 (see below) of the Form W-4 and signs it, their withholding will be computed based on the filing status’s standard deduction and rates, with no other adjustments made. See IRS W-4 page for complete changes, as well as General FAQs.
Calculating Federal Income Tax Withholding Procedure
As previously noted, this new Form W-4 no longer uses withholding allowances. Instead, there is a five-step process and new Publication 15-T (Federal Income Tax Withholding Methods) for determining employee withholdings. It is as follows:
- Step 1. Enter personal information and anticipated filing status to determine the standard deduction and tax rates used to compute withholding.
- Step 2. Indicate multiple jobs and, if filing jointly, whether spouse works. The 2020 Form W-4 also contains a multiple jobs worksheet to help an employee complete Step 2. An employee may prefer to use the IRS Withholding Estimator.
- Step 3. Claim credits (i.e. child credit, etc.) for additional dependents.
- Step 4. Make other final adjustments including: (1) other estimated income for the year (e.g., interest, dividends and retirement income), (2) deductions other than the standard deduction to reduce withholding and (3) any additional tax the employee wants withheld for each pay period.
- Step 5. Sign and date the document.
One thing to keep in mind is that an employee may claim exemption from withholding in tax year 2020 if: (1) the employee had no federal income tax liability in 2019 and (2) the employee expects to have no federal income tax liability in 2020.
How EPAY Can Help
With the help of EPAY’s cloud-based, human capital management system, federal form changes and tax management compliance are easier than ever. Our customizable software allows you to upload and distribute all your business’s necessary forms and updates, process and approve W-4s with ease, as well as manage multiple work locations and state reciprocities. What’s more, there are no limits to the number of earnings, payroll deductions, pay rates or distributions that our system can handle.
So how about it? Ready to pass your payroll processing and tax management burdens to EPAY Systems? Learn more about our Payroll Management Services & Tax Filing Solutions or see our check out our live HR and Payroll demo today!