On December 5, the IRS released the final version of its 2020 Form W-4. Redesigned following the passage of the Targeted Cuts & Jobs Act (TCJA) in 2017, the new form reflects the changes made by the TCJA to Federal tax withholding law, including:
- The elimination of exemptions and allowances as tax deductions
- An increase in standard deductions
- The elimination or restriction of itemized deductions
- An increase in Child Tax Credits for qualifying children
- New tax withholding tables
Following the passage of the TCJA, the IRS attempted to align the new tax tables created from the TCJA with the old W-4s, which were based on exemptions and allowances (M-3, S-2, M-0, etc.), until a new W-4 was designed and approved.
In 2018, the IRS presented their first version of the new W-4, to be used for 2019. Several organizations, including the American Payroll Association (APA), advised the IRS that their first draft was too burdensome for both employees and employers. Also, the expected release date of the final form would not provide enough time for software changes to be in effect by 1/1/2019. The IRS delayed the form until 2020 and began work on a more “user friendly” version.
Partnering with the APA and others, the IRS’ final form is much simpler and replaces the previous complicated worksheets with straightforward questions.
What Employers Should Know About the New W-4
The 2020 W-4 eliminates exemptions and allowances as possible tax deductions, and instead takes employees through five steps in which they are asked to input annual dollar amounts in order to calculate their withholding.
Existing employees who submitted a prior year Form W-4 are not required to complete the new 2020 W-4, unless they wish to make a change during 2020.
All new hires in 2020 must complete the new W-4, and can no longer request withholding based on exemptions/allowances. If a new hire in 2020 does not properly complete the new W-4, they should be treated as a single filer with no other adjustments. This will be the equivalent of the former S-0 and withheld at the highest possible rate.
In addition to the form itself, the IRS has also released a draft of Publication 15-T, which includes an employer withholding worksheet, Method Tables for Automated Payroll Systems, and wage-bracket withholding tables. Employers and payroll vendors should use these tax tables to calculate employee withholding. These tax tables will accommodate withholding calculations for those employees who do not submit a 2020 W-4 and those who do.
Finally, employers should not advise employees on how to complete the new W-4. The IRS provides guidance tools to assist employees, including a Tax Withholding Estimator. Employees can also be encouraged to consult with their personal tax accountant.
For More Information
- Employer & Employee FAQs (developed by the IRS to address common scenarios)
- The Tax Withholding Estimator, available on the IRS website, is a resource to help employees navigate the new W-4 for the most accurate withholding.
Please Note: The current Estimator is for 2019 and if used for 2020, should be visited again in early 2020 to re-check withholding. The version for 2020 is to be released in mid-late December, soon after the final tax tables are released.
Download PROXUS' 2020 Form W-4 Guide