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How Will the 2020 Form W-4 Impact Income Tax Withholding?

The Internal Revenue Service (IRS) has released another preview of Form W-4 to the public. The new design aims to simplify the withholding system, replacing complicated worksheets with questions designed for the layman. The hope is that the form will help employees report more accurate amounts, allowing the IRS a better assessment of taxes paid.

One thing you might notice on the new Form is the absence of the word, allowance. The title of Form W-4 is now the Employee’s Withholding Certificate. While the final Form is not expected to be released until October, the IRS has assured taxpayers that there will be no more substantive changes. The principal reason for issuing these drafts is to aid employers that are setting up their 2020 payroll systems. Employer instructions regarding Federal Income Tax Withholding Methods were released in the first early release draft. This recent release expands on the first draft and includes separate computations based on the method of withholding (Percentage or Wage Bracket Method), payroll system (automated or manual), and whether Form W-4 is a 2020 form or an earlier version.

To help further your understanding of the redesign and its impact on employers, we have provided clarification around frequently asked questions regarding Form W-4 below.

  • Current employees are not required to submit a new Form W-4. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4. However, employees that wish to adjust their withholding must use the redesigned form.
  • Employees hired after 2019 that fail to submit a Form W-4 will be treated as a single filer with no other adjustments. Beginning in 2020, all new employees must use the redesigned form.
  • Employers will not necessarily need two systems to compute payroll. The same set of withholding tables will be used for both sets of forms. If employers prefer to use a single system based on the new 2020 Form, they can enter zero or leave blank information that does not translate between the two forms.
  • Employers that wish to ask their employees to convert to the newly designed Form can make the request, but they cannot require them to submit a new Form or penalize them for not conforming.

As a reminder, the new forms go into effect in tax year 2020. Additional guidance is expected regarding payroll calculations needed based on the data fields on the new and old forms, as well as guidance surrounding employees that fail to submit a Form W-4 after 2019. If you have any questions about the new form, please give the professionals in our office a call today. View the new Form W-4.