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Everything You Need to Know About the New Form W-4
The 2020 W-4 form was released earlier this month with just weeks left in the year. As the year comes to a close, are you ready to tackle the new Form W-4 in 2020? If you’re trying to figure out how this will affect you in the new year, below is a basic guide to help you get started!
WHY is there a new W-4 form?
Most employees can remember their first day starting a new job and filling out Form W-4, but do you really understand the form when you fill it out? The form has complicated jargon that is not used on a daily basis. Many people fill out the form without fully understanding it, which ultimately costs them. If you fill out the form incorrectly and end up withholding too much (and get a refund), you’re essentially giving out an interest-free loan.
The new W-4 form is meant to be simplified so that employees can more accurately describe how much federal income tax should be withheld from their paychecks. The form uses the same basic information as the old form, but eliminates some of the complex worksheets with more straightforward questions to increase accuracy.
WHO should file a new W-4?
Employees who filed Form W-4 in a year before 2020 will do so not you must resubmit the form. Employers will continue to calculate withholding based on information from the most recent W-4. Starting in 2020, all employees starting a NEW the job will have to fill out the new form. The form will also need to be completed for life-changing events, such as marriage or the birth of a child. Anyone who simply wants to adjust the withholding amount will also need to fill out the form.
WHAT SHOULD COMPANIES DO TO PREPARE?
Since current employees will not be required to submit new W-4s, all employers’ payroll systems will need to be updated to accommodate the existing withholding allowance calculation as well as the new calculation. There will now be two Federal Tax Tables. Employees with 2019 or earlier Forms W-4 will be taxed using the Standard Withholding Rate Schedules. New W-4 employees will be taxed using the new tax table. Additionally, Step 2 of the form asks about Multiple Jobs. If the box is checked, the new table should be used, but if unchecked, the Standard table will be used.
WHAT is the biggest difference?
The W-4 will no longer display a line to enter a number of allowances that were associated with personal exemptions on the Personal Allowances worksheet. This change stems from the Tax Cuts and Jobs Act of 2017 that temporarily suspends the personal and dependent exemptions until 2025. The new form is now titled “Employee Withholding Certificate” lines “Withholding Authorization Certificate at the source of the employee”. Now the form is divided into 5 steps.
In addition to the new Form W-4, the IRS also released a New Withholding Tax Assessor. This calculator walks you through the steps to help you estimate your withholding. It’s a great tool to use to make sure you’re getting the right amount of tax from each of your payments.
Will the new W-4 form really simplify everything?
It is debatable whether the new form really simplifies the process as it is intended to do. Some worry that it will be more complicated for employees since they will have to perform the multiplication themselves (Step 3) and may cause errors. Tax exemption is also not on the form; however, it is still allowed. If you take a look at the fine print, it states if the individual is tax exempt, they must handwrite “Exempt” in the space below 4(c). This is something employees may not know they need to do. Additionally, the electronic PDF used for e-sign OnBoarding does not include an entry for this.
What are the best next steps for employers?
Whether the form is simplified or even more complicated, employers have no choice but to prepare for the change in the limited time we have left before the new year. The first steps would be to ensure that your payroll systems will be up to date and ready to go by January 1, 2020. Second, it is advisable to consult your accountant or local tax professional for guidance on how to address any gray areas of the new Form W-4.
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