New year, new you, new W-4. Last week, the IRS released the 2020 version of the W-4 form. Payroll professionals have been eagerly anticipating the finalized draft for months, but what’s bureaucracy without a hefty waiting period? While the updated form may have taken plenty of time to arrive, IRS Commissioner Charles Rettig notes the updated form will “provide much more “simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
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Why is There a New W-4?
The new form is largely a response to the Tax Cuts and Jobs Act that went into effect in 2018. Specifically, the IRS hopes the new form will provide a much easier experience for employees filling it out and organizations filing them. In order to reflect tax code changes under the new act, the form will not include holding allowances tied to personal exemption amounts.
Furthermore, the often confusing worksheets synonymous with previous versions of the W-4 have been replaced by much more straightforward questions. It was also important that the new form includes more language on employee privacy, namely in regards to employees electing to withhold additional taxes while sharing less information with their employers.
What’s on the New W-4?
As noted above, the updated form seeks to make completing it a little easier on the employee and provide better explanations. One major change to the form is its very title. The new W-4 will now be known as Employee’s Withholding Certificate. But that’s not all. The very process of filling out the form is much more streamlined.
The new form consists of five simple steps, with only the first two required by every employee. While in years past this form has included a section for withholding allowances, the new form relies on the five step system to allow employees to declare additional income and in turn allow employers to adjust withholdings much more easily, accurately and privately.
Here’s what the five sections of the W-4 will look like:
- Employee Personal Information
- Multiple Jobs/Spousal Employment
- List of Dependents
- Other Adjustments (investment/retirement income, non-standard deductions, additional tax withholdings)
And that’s it! Again, some employees may only need to complete sections 1 and 5 (their personal information and a signature) if none of the other information applies. If the other three steps are applicable, the IRS asserts the withholding information will much more accurately match the employee’s tax liability.
What Do Employers Need to Know About the New W-4?
When you communicate the new forms to your employees, you should note that the updated version is much easier to fill out. However, employees do not need to fill out a new W-4 form as long as the information on previous forms is still current. This will make the transition to the new form far less stressful for HR and payroll departments. However, it’s worth noting that you may need to update your payroll software to accommodate both methods of withholding calculations.
A few other things to note. As you might expect, any employee hired after January 1, 2020 must use the new form. Additionally, any change or new adjustments to an existing employee’s withholding must be completed in the new form.
Manage All Things Payroll with CTR
When it comes to managing your organization’s payroll, we find that the only constant is change/ Just when you think you have a firm grip on this form or that procedure, along comes a new law or special consideration.CTR helps you stay up-to-date all things taxes, payroll, benefits and HR. Learn what our iSolved payroll software can do for your organization.