The new W-4 form has caught up with the 2018 Tax Cuts and Jobs Act – here’s what you need to know now!

By Macon Albertson, Director, Hunter Hollis a Signature Consultants company.

The IRS released its latest draft of the 2020 W-4 – the form employers and payroll departments use to determine employee tax withholding – in August. (The final version, which will include only minor edits, will be released in November.) The new form has been updated to align with the 2018 Tax Cuts and Jobs Act, which eliminated personal and dependency exemptions, increased standard deductions and the child tax credit, and changed itemized deductions by limiting state and local tax deductions, limiting mortgage interest deductions, and changing the deductibility of interest for home equity debt.

The new form has a simpler design that replaces complicated worksheets with more straightforward questions, so accurate withholding is easier for employees. But what does it mean for employers and HR professionals?

What This Means for Employers and HR Pros

Because it was designed to calculate withholding allowances, the current W-4 hasn’t been in sync with the new tax laws that went into effect in 2018. The 2020 W-4 promises to be a welcome change for many employers. The new form released by the IRS has been greatly simplified, and ultimately will help streamline the tax process for employees and employers alike.

Using the New 2020 W-4: 3 Key Considerations

  1. Beginning on January 1, 2020, all new employees will be required to use the new form. And, any employees hired before 2020 who want to adjust their withholding after January 1, 2020, must use the new form. However, the IRS has indicated that it cannot require employees hired before 2020 to complete the new W-4. While employers may request that their employees complete a redesigned W-4 as part of their business practices, they cannot require any employee to fill out the new form. And, if an employee chooses not to complete the new form, the employer must continue withholding based on a valid form previously submitted.
  2. Going forward, employers will need to support both W-4s – the new 2020 version and the current version. This doesn’t necessarily mean the employer will need two systems to support these forms, as the same set of withholding tables will be used for both of them. To use the same system for both forms, employers would simply note marital status on the old form, and ignore any exemptions. For example, if an employee has indicated “single” and “1 exemption” on the old form, the system in place should account for the marital status of “single” and cross-reference that status with the appropriate taxpayer bracket. (Those referenced here are for 2019 taxes due in 2020. The 2020 tax brackets won’t be available until later in 2019.) The goal will be the same – to have neither too much returned nor too much owed.
  3. If you’re working with a payroll partner or an employer of record (EOR), their system will update automatically to support both the new form and the current one – just as they do when there are updates to social security limits or changes to the Medicare tax. However, you’ll still need to provide your employees with guidance on the new form.

Arm Employees with the Right Tools, but be Cautious About Giving Advice

The most challenging thing for many employers will be guiding the employees coming to you with questions about the 2020 W-4.

In light of this, employers and HR professionals must be very careful when employees approach them with questions about the new form and process. Fortunately, the IRS has posted the Tax Withholding Estimator to help employees navigate the new form. While HR professionals cannot give advice, they can guide their employees to this tool. Additionally, the IRS has developed helpful FAQs that plainly address many of the questions employees may have about the new form and how it affects them. 

And, if you have additional questions about the new form and how it could impact your company, or any other payroll or EOR questions, please click here or reach out to me directly: [email protected].

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