The IRS has launched a new W-4 form for 2020 and it is already in effect even though most employers are not even aware it exists. New employees should be using this form when they sign-up for payroll. By the way, Insightful Accountant told you that the new W-4 Form was on its way back in August in our article, IRS Announces New W-4 Form for 2020, so you really shouldn't be surprised that the new form is here!
The 2020 IRS W-4 Form
The W-4 Form, also known as the Employee's Withholding Certificate, has undergone a major overhaul that will impact many U.S. workers, including all new employees and employees needing to make payroll withholding changes. Because of the drastic differences in this form it is more than likely to be a source of confusion for both employees and employers.
While the changes to the new W-4 form will likely result in confusion, they're ultimately a good thing. It should be easier for employees to set and adjust withholding to achieve the desired results, such as zero tax due, or a specific refund amount due back, at the time of their return.
New-2020_IRS-Form_W-4_p1
The form has an entirely new look and several new input fields replacing the familiar “withholding allowances” box. In some cases the form can be completed by simply filling in the information in 'Step 1' and 'Step 5' which is all that is required; however, in many (probably most) cases employees will need to provide details from their prior year’s tax return. If workers fail to complete this form properly they may likely end up with a surprise tax amount due at year-end.
Points of concern related to the new W-4 form:
1) There is No Withholding Allowance (# of allowances) box on the new form.
2) There is a new Head of Household filing status option on the new form.
3) There is no longer an 'Exempt' from withholding checkbox. To claim exemption from withholding you must certify that you meet the conditions of exemptions (see the instructions before claiming exemption, a copy of the instructions are shown in the figure below for information purposes only) by writing "Exempt" on Form W-4 in the space below Step 4(c).
4) An option to use an IRS website (www.irs.gov/W4App) estimator that gives you the maximum accuracy and privacy in computing the correct amount of withholding for multiple jobs, a spouse who also works, special dependent situations, or other income or deductions.
5) A simple checkbox option [Step 2 - C] when an employee has two jobs with roughly the same earnings, which results in the standard deduction and tax brackets being cut in half for each job for purposes of computation of withholding. The checkbox must be selected on the new W-4 form for both employers.
6) Lines 3, 4(a) and 4(b) are all 'annual' (Full Year) amounts, while line 4(c) is a 'pay-period' (Per Pay Check) amount. This is likely a source of significant confusion for both employees and employers.
General and Specific Instructions for the 'new' IRS (2020) Form W-4, Employee's Withholding Certificate.
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Employer Impact:
Employers maybe wondering if they will be required to have all of their employees complete this new W-4 form. The answer is 'No'. Current employees are NOT required to submit the new Form W-4 form just because the form changed if they have a prior W-4 form on file with the employer. An employee's withholding should continue based on a valid prior W-4 form previously submitted by the employee to the employer. Employers must continue to withhold based on the prior submitted information, they are NOT permitted to treat pre-2020 employees without the new W-4 form on file as failing to furnish Forms W-4 for purposes of withholding.
All employees hired after 2019 who do not submit the new 2020 W-4 form must be treated by the employer as a 'single filer without other adjustments.' This means that a single filer's standard deduction with no other entries must be taking into account in determining the employee's withholding.
Processing payroll will require employers to take greater care in how these forms are managed from beginning through implementation. It may take employees longer to complete these forms because they will need access to prior tax information and other financial data, they may even have turn-around time in completing the forms due to those requirements over the prior fill in just a number of allowances.
Employers will also have to carefully translate the information provided to insure that the withholdings are properly recorded in their payroll systems. Of course, some Payroll Systems may require alteration in order to properly record this information as it is reflected. Certainly 'automated systems' offering W-4 employee enrollment will have to be rapidly updated to meet the new requirements of the new forms. Therefore employers should be in touch with their Payroll System providers ASAP to inquire about compliance.
Pages 3 & 4 of the new (2020) IRS Form W-4 (provided for informational purposes only.)
New-2020_IRS-Form_W-4_p3&4
Disclosure: Content is for informational purposes only. In writing this article neither Insightful Accountant, nor the author, is providing any tax or payroll withholding advice for either employees or employers, nor are they providing any legal advice relative to the subject(s) discussed. Should you require tax advice consult a tax professional, should you require legal advice consult an attorney.