The New 2020 Form W-4 Is Available and It’s a Whole Lot Different

On December 5th, the IRS released its much anticipated new Form W-4 for 2020. There are some very significant changes to the new form that are intended to aid taxpayers in more accurately determining their appropriate withholding amounts for federal taxes from their paychecks in accordance with the 2017 Tax Cuts and Job Act.

Say Goodbye to Allowances

One of the greatest changes that taxpayers and employers will notice is the elimination of the allowances previously utilized on Form W-4s. Instead, employees will need to complete a longer form that takes into account their filing status, all sources of income (including a spouse’s), deductions, exemptions and credits in order to arrive at a closer estimate for taxes that should be withheld and ideally yield a zero dollar return when a tax return is completed. In essence, taxpayers will be completing a mini tax return using the new Form W-4.

Who Needs to Complete the 2020 W-4 Form?

Starting January 1, 2020, only new hires will be required to complete the new form and existing employees can just continue having the same federal tax amount withheld from their paycheck. If an existing employee has any life changes throughout the 2020 tax year, he or she can complete the new Form W-4 to determine the new withholding amount.

In 2021, ALL EMPLOYEES will be required to complete the new Form W-4. Employees are only required to complete Steps 1 and 5 on the form. Completion of the other steps is optional, but if applicable, may help the employee better estimate tax withholding amounts.

Keep Those Prior Year’s Tax Returns Handy

Given the complexity and breadth of information required for the new Form W-4, employees will likely need to consult their prior year’s tax returns and/or accountants in order to gather the necessary figures and details. Married Employees should also consult their spouse as only one member of their tax household should complete the dependent information in Steps 3, 4(a) and 4(b).

What Should Employers Do?

Employers should be prepared to give newly hired employees extra time to complete their Form W-4 and should also set a reminder for October or November of 2020 to initiate the process of having ALL employees complete the new form. Employees may also want to utilize the IRS Tax Withholding Estimator (see link under Additional Resources), which employers can share as part of their Form W-4 communications.

As with all Form W-4s, employers do not need to submit them to the IRS. However, employers should retain copies of the Form W-4s completed by employees for at least 4 years.

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Additional Resources

Download New 2020 Form W-4
IRS Training Video for 2020 Form W-4
IRS Tax Withholding Estimator (Currently To Review 2019 Taxes. Withholding Estimator for 2020 Available in January)