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Forget Everything You Knew About Withholding Allowances: The New W-4 Form Is Here
If you’re like most employers, you probably have questions. What is the IRS new W-4? How does it differ from previous versions of Form W-4? Find out what you need to know to prepare for the new form.
What is the new W-4 form?
The 2020 Form W-4, Employee’s Withholding Certificate, is an updated version of the previous Form W-4, Employee’s Withholding Allowance Certificate. The new IRS W-4 complements the changes to the tax law that took effect in 2018. This new design aims to simplify the process of filling out Form W-4 for employees and improve tax withholding accuracy.
Employees fill out Form W-4 when they start a new job. On the form, employees enter their contact information and Social Security number, report their filing status, and claim dependents.
Employers use Form W-4 to determine how much to withhold from an employee’s gross wages for federal income tax. You need the employee’s completed Form W-4 to use the withholding tables in IRS Publication 15.
New hires who receive their first paycheck after 2019 must use the 2020 Form W-4 when they begin working at a business. Your other employees don’t need to fill out the new form. However, employees who want to update their withholdings and need to change W-4 forms must use the 2020 version.
If you’re familiar with old versions of the form, you’re probably thinking that this all sounds pretty much the same. So, how is the new W-4 different?
New IRS W-4 form vs. old: What’s the difference?
There are a few changes with the Form W-4 2020 version
Form W-4, now just called Employee’s Withholding Certificate, is divided into five sections:
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Enter Personal Information
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Multiple Jobs or Spouse Works
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Claim Dependents
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Other Adjustments
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Sign Here
Like previous versions of Form W-4, there is a multiple jobs worksheet and deductions worksheet on the new W-4 form.
But unlike previous versions, the new W-4 form has done away with withholding allowances. Employees can no longer claim withholding allowances.
In the past, employees could claim withholding allowances to lower the amount of federal income tax withheld from their wages. The more withholding allowances an employee claimed, the less you would withhold in federal income tax.
Now, employees do not have the option to claim withholding allowances. Instead, they can claim dependents or use the deductions worksheet to lower the amount of taxes withheld.
What these changes mean for employers
So, what does this seemingly little change mean for employers?
If you were used to using the old income tax brackets, you know that you would locate the employee’s pay frequency, filing status, gross wages, and withholding allowances.
But for employees you hire in 2020 and beyond, you can throw the old tax brackets out the window.
Like previous income tax withholding tables, there are two methods for calculating federal income tax withholding—percentage and wage bracket methods. However, the method you choose now depends on how you process payroll:
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Percentage Method Tables for Automated Payroll Systems
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Wage Bracket Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later