The US redesigns payroll tax withholding forms for 2020
To conform to the income tax withholding requirements of the Tax Cuts and Jobs Act, the Internal Revenue Service (IRS) redesigned Form W-4 (Employee’s Withholding Certificate). The new Form W-4, which took effect on the 1 January 2020, features significant changes that reduces the form’s complexity and increases the transparency and accuracy of the withholding system. The new form will have a direct impact on employees who are hired in the 2020 calendar year, as well as existing employees who wish to make changes to their withholdings.
Highlights of the 2020 Form W-4 include:
- Employees who have provided their employer with a Form W-4 in any year prior to 2020 are not required to complete the redesigned form as they will be grandfathered and allowed to remain with the previous withholding calculations. Employees who wish to adjust their current withholdings should complete a new Form W-4.
- Complicated worksheets have been replaced with five concise questions that will allow employees to achieve more accurate withholding. If an employee only completes Steps 1 and 5 on the form, withholding will be computed based on the individual’s filing status’ standard deduction and tax rates, and no other adjustments will be made.
- Allowances have been eliminated on the new form as a result of the tax law changes that eliminated personal exemptions and dependency exemptions.
- A Form W-4 that claims exemption from withholding is valid only for the calendar year in which it is filed with the employer.
- To provide employers with additional assistance, including guidance on withholding adjustments for non-resident alien employees, the IRS has updated Publication 15-T (Federal Income Tax Withholding Methods).
The challenge employers are facing, especially those running in-house payrolls, is how to code their systems to run two different payroll withholding calculations simultaneously and get the right one to apply accurately to the right employee compensation.