On December 5, 2019, the IRS released the 2020 version of the W-4 form. This new form looks significantly different than the W-4 forms of the past, due to the federal tax law changes that took place in 2018, which may lead to some questions from employees.
Existing clients of Helpside will notice that the Federal Tax Withholding section in the Helpside Tools website will be updated to reflect these changes to the W-4 form after the first of the year.
What has changed:
The first thing most people will notice is that employees no longer list a number of exemptions on the W-4 form. Instead, employees complete their personal information and then answer a number of optional questions that are designed to better determine an employee’s tax liability.
There five steps for employees to complete in the new W-4 form outlined below. We also created a video that outlines these steps.
Step 1: This section is required for all employees. Here employees will fill out personal information such as name, social security number, address, and tax filing status.
Step 2: This section is optional. Employees can use it to more accurately determine their tax liability if they have multiple jobs or if they are married filing jointly and their spouse also works.
Step 3: This section is optional. If employees do not have any or do not want to claim any dependents, they can leave this section blank. This section is used place of claiming exemptions on older W-4 forms.
Step 4: This section is optional. Here, employees can include any additional adjustments including investment and retirement income, additional deductions, and any extra tax withholding per pay period. If employee us the online IRS withholding calculator, it may provide them with a number to include here.
Step 5: This section is required for all employees. Employees must sign the form once it is complete.
Because the form looks different, employees will likely have questions about how to accurately complete it. We encourage clients to be careful about giving tax or legal advice to employees. Instead encourage employees to use the free IRS tools online or reach out to a tax advisor.
Common questions about the new W-4 form:
When do I need to begin using the new W-4 form?
Any new employees hired starting on January 1, 2020 will need to use the new W-4 form. Any employees making changes to their tax deductions on or after January 1, 2020 on will need to use the new W-4 form.
Do I have to have current employees fill out a new W-4 form?
No. Current employees who do not want to make changes to their tax deductions, do not have to fill out a 2020 W-4 form. Withholding will continue to be based of their most recent W-4 form until a change is made. Even though the IRS does not require all employees to complete the revised form and even if your tax situation has not changed, we recommend that all employees use the IRS online tools to determine if they need to make any adjustments.
How does an employee claim ”Exempt” on the new W-4 form?
To claim exemption from withholding on the new form, employees should complete Steps 1(a) and 1(b) and write “Exempt” in the space below Step 4(c). Then be sure to sign the form in Step 5. They should not complete any other steps. If an employee claims “Exempt” they will need to submit a new Form W-4 by February 16, 2021.
According to the instructions on the new W-4 form, employees may claim exemption from withholding for 2020 they meet two conditions: The employee had no federal income tax liability in 2019 and expects to have no federal income tax liability in 2020. If an employee claims ”Exempt” they will have no income tax withheld from their paychecks and may owe taxes and penalties if they do have tax liability when they file their 2020 tax return.
How can I help employees that have questions about what they should claim on the new W-4 form?
Encourage employees to read the instructions on the new W-4 form. Many of their questions may be answered by the form itself. Also, there is an updated tax estimator available from the IRS to help employees better fill out the new form.