On December 5, 2019 the IRS issued the redesigned 2020 Form W-4, which determines how much federal income tax is withheld from an employee’s paycheck. The IRS explained that the new form will “reduce the form’s complexity” and “helps with the transparency and accuracy of the withholding system.” Basically, the new form drops the language of allowances in favor of a series of questions about an employee’s income and dependents. Instead of calculating the number of allowances, which translates into a certain amount of tax withheld (the more allowances, the less money is withheld), the 2020 Form W-4 features the following five steps:
Step 1. For an employee’s personal information and his/her anticipated filing status to determine the standard deduction and tax rates used to compute withholding.
Step 2. For an employee who has: (1) more than one job at the same time, or (2) are married filing jointly and both the employee and his/her spouse work.
Step 3. Provides instructions for determining the amount of the child tax credit and the credit for other dependents that you may be able to claim when you file your tax return.
Step 4. For an employee to enter: (1) other estimated income for the year (e.g., interest, dividends and retirement income), (2) deductions other than the standard deduction to reduce withholding and (3) any additional tax the employee wants withheld for each pay period.
Step 5. The employee signature and date under penalties of perjury.
The only two steps required for employees filling out the 2020 Form W-4 are Step 1, where an employee enters personal information, and Step 5, where an employee signs the form. If an employee only elects to fill out only those steps, their withholding will be computed based on their filing status’s standard deduction and tax rates, with no other adjustments. Further, any employee who has furnished Form W-4 in any year before 2020 is not required to furnish a new form merely because of the redesign. Employers may continue to compute withholding based on the information from the employee’s most recently furnished Form W-4. Only those employees who are hired in 2020 or who make withholding changes in 2020 must use the 2020 Form W-4. For more information on the new form for both employees and employers, the IRS has rolled out a dedicated FAQ page for the new W-4 here: https://www.irs.gov/newsroom/faqs-on-the-2020-form-w-4.
If you have questions regarding the changes to the 2020 Form W-4, please contact any one of our team of employment law attorneys.