2020 Revised Form W-4: Are You Ready?

When you hire an employee who starts in 2020, you must give them the newly designed Form W-4, which is less complex, more transparent, and makes it easier for your employees’ withholding to match their tax liability. The new form has been renamed Employee’s Withholding Certificate, removing the word “Allowances” from the title. Withholding Allowances have been removed from the form because the change in tax law no longer allows claiming personal or dependency exemptions.

Current employees do not need to fill out a new form with their existing employers. Only new hires need to fill out the new form. However, if a current employee wants to update their withholding, they must fill out one of the newly designed Forms W-4.

New Steps 2-4 are used to calculate correct withholding:

  • Step 2 – Report additional jobs or other income – tax rates rise as income rises.  There are three different options in Step 2: Use the online app from the IRS to estimate withholdings; use a worksheet to estimate withholdings; or check a box to state you have 2 jobs. If you have a side job, you’ll need to pay self-employment taxes. Thus you should make estimated tax payments or use the withholding tax estimator on the IRS website to see how much extra to add to your W-4 withholdings.
  • Step 3 – Decrease your withholding for income tax credits for dependents.
  • Step 4 – If you want a bigger refund, enter the amount of extra withholding in 4c or Step 2c.

New employees who fail to submit a Form W-4 after 2019 will be treated as single filers with no other adjustments. As an employer, if you decide to have all employees fill out new Form W-4s, you must let them know that it’s not necessary to complete the new form. There will not be separate payroll tax tables for the different W-4s as the tables will work with both the old and new forms. For more complex tax situations, employees can check their withholding at https://www.irs.gov/paycheck-checkup.

At Payroll Vault, we keep our employers compliant with ever-changing laws and provide them with the latest forms. If you would like to work with a dedicated payroll specialist who keeps up with tax and labor law, contact us at payroll101@payrollvault.com or call 970-682-6603.