3 TIPS TO HELP YOU AND YOUR EMPLOYEES NAVIGATE THE 2020 W-4 CHANGES

2017’s Tax Cuts and Jobs Act was the largest overhaul to the tax code in 30 years. So, it might not surprise you to learn some of the changes took a couple of years to implement.

The first wave of changes included updating forms, instructions, and publications for withholding and estimated taxes.

And thus, the new 2020 W-4 form was born.

The goal of this new form is to “provide simplicity, accuracy, and privacy for employees while minimizing the burden for employers and payroll processors.” It’s also designed to improve the accuracy of employee withholding amounts.

Here’s a breakdown of what you need to know to help you and your employees reduce how much time and effort the new W-4 requires:

• If you have employees hired before 2020, they’re not required to fill out a new form. If you do ask them to fill one out, you have to let them know it’s not required. Employees who claim “exempt” will need to fill out a new form since that classification always has to be renewed annually.
• The new W-4 form is divided into five steps. Employees are required to fill out step 1 (demographics and filing status) and step 5 (penalty of perjury statement and signature). Steps 2-4 are optional. But those three middle steps will help them make sure their withholding amount is correct, especially if they have multiple jobs, credits, deductions, or other income.
• The most accurate and private way for your employees to fill out the form is to use the Federal Withholding Estimator. If they have multiple jobs, they’ll need an estimate of their income for each. They can also fill out the worksheets on the W-4 or in Pub 15T if they apply. Note that a new Pub 15T should be released in December 2019.

The IRS does recommend that you let your employees know there’s a new form and that it’s optional to fill out. If employees ask whether they should fill out the new form, advise them to talk to their tax professional since everyone’s situation will be different.

As with most tax-related topics, there are lots of nuances and rules. To help businesses understand the changes, the IRS created this webinar. They’ve also provided a spreadsheet-based “Income Tax Withholding Assistant for Employers” to help you navigate the redesigned withholding system.

As always, let us know if you have any questions or concerns, and we’ll be happy to help you out and direct you to other resources!