Changes to the Federal W-4 Form

Effective January 1, 2020, all employers must start using the 2020 version of the federal W-4 form for new hires and current employees that wish to make changes to their tax withholdings. Current employees DO NOT need to complete a new W-4, unless they wish to make changes.

The W-4 form was redesigned by the IRS following the implementation of the Tax Cuts and Jobs Act, which made significant updates to the tax code. The redesign is intended to make completing the form easier for employees and is supposed to make employees’ withholdings more accurate. If too little is withheld, employees will generally owe taxes when they file their tax returns. If too much is withheld, employees will generally be owed a refund.

The IRS recommends using the Tax Withholding Estimator in order for employees to determine what their correct withholding should be. Anyone who wishes to use the Tax Withholding Estimator should gather the following information before beginning the process: their own most recent pay statements, the most recent pay statements for their spouse (if they are married filing jointly), information from other sources of income, and their most recent income tax return. Using the Estimator will provide employees with the most accurate withholding.

One of the biggest changes to the new W-4 form is the elimination of the need for withholding allowances. Instead, there is now a five-step process for determining employee withholding. The five steps are listed in five sections on the new 2020 W-4 form. Step one requires employees to fill out their personal information such as their name, address, social security number, and how they are filing (single, married filing separately, married filing jointly, or as head of household). Steps two, three, and four are optional but are recommended as they will provide employees with a more accurate withholding. Employees may use the Tax Withholding Estimator mentioned above for steps two though four or they may use the worksheet on page 3 of the W-4 form. There is a checkbox on step 2(c) that can be checked if employees opt not to use the Estimator or worksheet and there are only two jobs in the household with similar pay. Step three pertains to tax credits, most commonly for children or other dependents. Step four is to calculate other adjustments, such as extra withholding. Employees are allowed to enter a negative number into the 4(c) box to have a smaller amount withheld. Step 5 requires employees to sign and date the W-4 form.

If a new hire or rehire elects not to provide a 2020 W-4 form, they should be set up as a single filer with no other adjustments. The IRS will not accept W-4 forms from prior years.

The new W-4 form and the many changes it contains can feel confusing and overwhelming to employees and employers. UAP’s goal is to ensure that our clients are in compliance with all relevant laws and regulations. Contact UAP to see how we can help your business remain in compliance and stay abreast of the ever-changing rules and regulations.