New Forms Take Effect January 1, 2020
With the new year comes a redesigned W-4, featuring a fresh look and several new fields. After delays, several draft versions and some major revisions, the Internal Revenue Service released the final version of the 2020 Form W-4 on December 4, 2019.
Form W-4, or Employee’s Withholding Certificate, determines the correct amount of tax to be withheld from an employee’s paycheck. Effective January 1, 2020, the new form’s goal is to make accurate withholding easier for employees. However, the changes could be confusing and intimidating at first glance.
IRS Commissioner Chuck Rettig said, “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
ADP, a leader in payroll and human resource solutions, broke down what the changes mean for companies and their staffers.
"While the updated form may initially elicit some confusion for employees, these important changes will ultimately simplify the ability to set and adjust withholding to achieve desired results, such as a specific tax refund amount," said Pete Isberg, vice president of government affairs of ADP.
"That being said, the form may require employees to remember specifics from their most recent tax return to properly fill out the form and avoid any issues. The 2020 Form W-4 features significant improvements and simplification for those with multiple jobs and two-earner families," said Isberg.
How has the form changed?
The IRS 2020 Form W-4 shifts several computations from the employee to the employer. It features a new checkbox for multiple jobs and two-earner households, replacing a difficult and potentially confusing nine-step worksheet in the 2019 version. If this box is checked, the tax tables divide the standard deduction and tax brackets equally between two jobs, so tax rates apply at roughly half of the income threshold that normally applies.
The updated form will also contain new payroll inputs including full-year child and dependent tax credits, full-year other income and full-year deductions. These new inputs will simplify the process for employees, but they will require employers to convert full-year expected tax credits to reduce per-payroll tax withholding and use full-year deductions to reduce per-payroll wages subject to withholding.
Can an employer be held liable for errors on withholding?
According to Isberg, employers must accurately apply input from Forms W-4 and calculate withholding in accordance with the new formulas and instructions. Employers may be held liable for amounts that should have been withheld but were not.
Do all employees need to fill out the new form?
No, if existing employees are happy with their current withholding, they can leave their 2019 or prior Form W-4 in effect. However, to make any changes or updates to their current W-4, employees will need to use the 2020 Form W-4.
Any new employees hired on or after January 1, 2020 will need to use the new form. Because of the changes to the W-4, employees may need more time to complete the form; e.g., to call their accountant or their spouse to look up details from last year's return, such as total deductions, tax credits or other income.
What are some common mistakes to avoid?
Isberg cautioned there are some potential areas of confusion as employees and employers become familiar with the IRS 2020 Form W-4. For example, the document asks for "deductions other than the standard deduction." Employees will want to ensure they enter expected deductions over the standard deduction amount, rather than total deductions. Additionally, if an employee is in a two-earner household and they opt to check the box in Step 2, both spouses should check the box, but only one of them should fill out Step 3 and Step 4 of the form.
Where can I find the new form?
The updated form can be found on the IRS’ website at www.irs.gov/pub/irs-pdf/fw4.pdf
I’m still confused. Where can I find additional help?