What You Need to Know about the 2020 W-4 Form

On December 5, 2019, the Internal Revenue Service (IRS) released the final version of the Form W-4, Employee’s Withholding Certificate.  Employees have long used the Form W-4 to establish their withholding allowances to adjust their federal income tax withholding in order to match their anticipated full-year income tax liability.  Since the enactment of the Tax Cuts and Jobs Act (TCJA) in 2018, it has been anticipated that a new, redesigned Form W-4 would be released based on the TCJA’s significant changes to tax rates, deductions, tax credits and personal exemptions.  Due to time constraints and concerns from the payroll community, the IRS postponed the release of a new Form W-4.

The 2020 Form W-4 includes major revisions so that it complies with the income tax withholding requirements in the TCJA, including new input elements for federal income tax withholding calculations (which require payroll systems to be significantly reprogrammed).

Major Changes to the 2020 Final Form W-4 Include:

  • Not all employees must use the new 2020 Form W-4. While the new form includes significant changes from the 2019 Form W-4, the IRS has designed the withholding tables to work with the new 2020 form or a form W-4 from a prior year.  Most importantly, not all employees are required to complete a form.  However, any and all new hires in 2020 are required to complete a 2020 Form W-4.  Also, current employees who have completed a Form W-4 prior to 2020 and want to make changes to their withholding in 2020 are required to complete a 2020 Form W-4.  Employers should also note that while employees are not required to complete a new form (other than the previously discussed employees), employers may request all employees complete a 2020 Form W-4.
  • The new 2020 Form W-4 requires a five-step process for employees to complete to determine his/her withholding as follows:
    • Step 1: Input employee’s personal information and anticipated filing status to determine the standard deduction and tax rates used to compute the withholding amount.
    • Step 2: Use if employee has: (1) more than one job at the same time, or (2) are married and filing jointly with his/her spouse.
    • Step 3: Instructions to determine the amount of the child tax credit and the credit for other dependents.
    • Step 4: Use to enter: (1) other estimated income for the year (e.g., dividends, interest, and retirement income), (2) deductions other than the standard deduction to reduce withholding, and (2) any additional tax an employee wants to withhold for each pay period.
    • Step 5: Where an employee signs and dates the form under the penalties of perjury.
  • Employees are now limited to claim exemptions from withholding. An employee may claim an exemption from withholding in the 2020 tax year 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.

What can employers do now to prepare for the new 2020 Form W-4?  Inform managers and Human Resources who are involved in the hiring process of the new changes to the form.  It may also be necessary to adjust certain hiring and/or on-boarding procedures, such as allowing new employees to complete the new form at home or provide additional time for employees to complete the form.



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