2020 Form W-4

The IRS released the final version of the 2020 Form W-4 (Employee’s Withholding Certificate) on Dec. 5. According to the IRS, the new form is intended to make accurate withholding easier for employees. It reflects changes necessitated by the 2017 Tax Cuts Jobs Act (TCJA) that went into effect in 2018.

IRS Commissioner Charles 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.”

Changes to the form

Here are major changes to the 2020 Form W-4:

• Eliminates withholding allowances

In one of the most significant changes, unlike the 2019 Form W-4, the 2020 form abandons the traditional allowance system which was tied to personal exemptions. This reflects the 2017 Tax Cuts Jobs Act (TCJA) that eliminated the personal exemption. (This is reflected in the new name of the form, which drops the word “Allowance.”)

• Provides steps to adjust employee withholding:
  • Claiming multiple jobs or if spouse works
  • Claim dependents
  • Other adjustments
    • Other income, not from jobs
    • Deductions other than standard deduction
    • Any additional tax withholding per pay period
• Replaces old worksheets with straightforward questions

The form is now 1 full page and 3 pages of instructions that also include short worksheets for Multiple Job income and Deductions as well as tax tables.

Who must file the new form?

The IRS provided this information on requirements to use the new form:

• All new employees hired beginning in 2020 are required to fill out the new form.
• Those who submitted a Form W-4 in any year before 2020 do not have to use the new form.

Their withholding will be computed according to their most recently submitted W-4.

• If an employee wants to adjust their withholding, they must complete the new form.
• If someone hired after 2019 does not submit a Form W-4, their withholding will be calculated as if they were a single filer with no other adjustments.

You can read more about these issues and find answers to other questions you may have about the 2020 Form W-4 on the IRS page: FAQ on the draft 2020 Form W-4 (posted August 2019).

The IRS also provides an on-demand webinar that explains the new form and how to use it to calculate withholding.

IRS Tax Estimator

The IRS has updated the IRS Tax Estimator. For 2020, the IRS recommends that employees use the Estimator to do a “paycheck checkup” to determine if you are having the correct amount of taxes withheld from you paycheck.

They also suggest using the Estimator if you made a mid-year adjustment to withholding in 2019, paid an unexpected tax bill or penalty last year, or if you had a major life change (marriage, dependents, income or job changes, etc.)

As stated in 2020 Form W-4 instructions, using the Estimator can also help protect your privacy if you want to limit the information provided in Steps 2-4. The General Instructions list these as possible reasons to use the Estimator”

• You expect to work only part of the year.
• You have dividend or capital gain income.
• You are subject to additional taxes.
• You have income from self-employment.
• You want the most accurate withholding for multiple jobs.

Publication 15-T for employers

Employers will use a new resource, Publication 15-T, Federal Income Tax Withholding Methods, with the 2020 Form W-4 to calculate how much federal income tax to withhold from their employees’ wages. The latest draft was published on November 4. When the final draft is released, you will find the link for it here.

Delphia Consulting and Sage: Keeping you current

Sage is in the process of making necessary changes to the Sage HRMS Payroll module to ensure you’ll be compliant with the new law. And if you are a Sage HRMS HR Actions user, be assured that Delphia will update the Sage HRMS HR Actions W-4 once the Sage changes are complete.

If you have further questions, as always, feel free to contact us at 1.888.421.2004 or contact Delphia Support.

Sage HRMS HR Actions

If you haven’t yet discovered paperless workflow in Human Resources with Sage HRMS HR Actions and the plugins like Sage HRMS HR Actions W-4 that extend its functionality, check our website or attend a webinar to learn more about it.