After much anticipation, the IRS debuted the new 2020 Form W-4 in December 2019. The form has been completely revamped as a result of the 2018 Tax Cuts & Jobs Act (TCJA). The redesigned form is intended to simplify a potentially complicated process and assist employees in making accurate determinations on federal tax withholding. Since 2018 was the first–year taxpayers were impacted by the TCJA, many may have been surprised either with the refund they received in 2019 or worse, the amount they owed on April 15.
So how does the new W-4 impact you as an EMPLOYER? You must use the new 2020 Form W-4 for:
- Employees hired after December 31, 2019. Until it is completed, signed, and filed, withhold federal tax at the Single rate.
- Employees wishing to adjust the amount of tax they have withheld from their paychecks. Until it is completed, signed, and filed, continue to withhold based on the previous W-4.
As an employer, you can request that every employee complete and submit a new 2020 W-4, but they are not required to do so. However, it’s a good idea for all employees to periodically check their withholding rates, not only because of changes in tax law, but also:
- Employees who experienced a major life event (e.g., birth, adoption, death, divorce, home purchase) since last completing a W-4.
- Employees who modified their W-4 mid-way through 2019. An employee may be withholding too much if they made a mid-year change to play catch up and haven’t readjusted their withholding accordingly.
For any employee who must or would like to complete the new W-4, the IRS has developed the Tax Withholding Estimator, an easy-to-navigate, five-step online process. To maximize use of the estimator, an individual should have easy access to their most recent paystub, their most recent tax return, and information on other sources of income. The Tax Withholding Estimator is easy to use, can be completed in a few minutes, and eliminates the guesswork frequently associated with determining adequate rates of withholding.