Since the Tax Cuts and Jobs Act (TCJA) passed in December 2017, there’s been a whirlwind of W-4 changes aimed at both accommodating the new tax code and helping taxpayers improve the accuracy of their withholding. Just this August, the IRS released a second draft of the 2020 W-4. While the final version is scheduled for release in November, the early draft and updates from the IRS give taxpayers an idea of what’s to come. To make sure you’re up to speed, here’s what you can expect from the latest 2020 W-4.
What’s changed with the 2020 W-4?
The latest 2020 W-4 draft brings some noteworthy changes, and there are changes still to come before the final version’s ready. The changes include:
- No allowances. Based on the new law, you cannot claim personal exemptions or dependency exemptions. Allowances are tied to personal exemptions and dependency exemptions, so allowances will not be used to calculate withholding in the 2020 W-4.
- A new form title. Since allowances will no longer be used to calculate withholding, the IRS removed “allowance” from the form title. The redesigned W-4 will now be called the “Employee’s Withholding Certificate.”
- A redesigned form. While the new form uses the same underlying information as the old form, it no longer has complicated worksheets. Instead, it will use straightforward questions aimed at making withholding calculations easier — and more accurate — for employees.
- Updated wage and salary ranges. The latest 2020 W-4 draft contains placeholders in the withholding tables and throughout. While the IRS said these could be used to program payroll systems, it stressed that the draft tables are for testing only; actual numbers for 2020 will be released later in the year.
- New line numbers. Calculation for withholding using the Wage Bracket Method moved to separate worksheets, and as a result, some line numbers have changed. The IRS, however, did not change how to calculate withholding using the Percentage Method from the first draft.
- Worksheet changes. The IRS renamed Worksheet 1, “Employer’s Withholding Worksheet for Percentage Method Tables for Automated Payroll Systems.” If you’re calculating payroll manually, there are four additional worksheets for calculating withholding. For both the Percentage Method and Wage Bracket Method, there are two worksheets: one for the 2020 W-4 and the other for forms completed before 2020.
- New instructions. In the event employees need to claim they’re exempt from withholding, the IRS added instructions for this scenario. Additionally, the IRS provided instructions for calculating withholding for nonresident alien employees.
Do employees need to update their W-4 using the new form?
Understandably, you may have some confusion around when and if you should use the 2020 W-4. Any employees hired in 2020 need to use the 2020 W-4. Additionally, if employees claim exempt status, they must submit the new form if they’re still exempt, as the 2019 form will expire on February 17, 2020.
If employees want to adjust their withholding, they will also need to submit the 2020 W-4. However, for uniformity, you may want to request that all of your employees submit the new W-4. If you make this request, make it clear that it’s not required. If employees choose to use a previously submitted W-4, their withholding will continue as is. However, as an employer, you must change their withholding to “single” or zero.
How to help employees navigate W-4 changes?
While the 2020 version of the W-4 is designed to make withholding easier for employees, we recommend taking these steps to give your employees additional guidance:
- Stay on top of alerts and instructions. Refer here for further W-4 updates from the IRS and make sure to communicate relevant information to employees.
- Encourage your employees to double-check their withholding. Follow our paycheck checkup instructions so your employees can withhold the right amounts from their paychecks.
- Direct employees to the IRS Tax Withholding Estimator. The IRS is encouraging taxpayers to use the Estimator to determine their withholding. To use it, your employees will need their most recent tax return and most recent pay stub from each job.
- Refer employees to the IRS W-4 webinar. The IRS posted a webinar, “Understanding the 2020 Form W-4 and How to Use it to Calculate Withholding,” to their video portal. This hour-long webinar includes everything from a detailed breakdown of the W-4 changes to a Q&A session related to those changes.
- Educate employees about potential scams. To help your employees protect their personal information, stress that you'll only gather their information through an updated 2020 W-4. Make it clear that neither you, nor the IRS, will request personal information via email or phone.
- Subscribe for updates. We will continue to monitor news on W-4 updates and provide information as we have it. To make sure you don’t miss updates, subscribe to the B2E Solutions blog, and follow us on LinkedIn and Facebook.
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