The federal Form W-4 is on the cusp of major changes, which will be implemented beginning with the 2020 tax year. Since the Tax Cuts and Jobs Act of 2017 (TCJA) suspended both personal and dependency exemptions and also significantly altered numerous deductions, it necessitated an overhaul of the existing W-4 to better align the form with current tax policy.
The IRS itself has explained that the redesigned W-4 is meant to ensure more accurate and transparent withholding. To this end, the draft 2020 Form W-4 eliminates withholding allowances and simplifies the previous worksheets that employees had to fill out to account for having multiple jobs.
An early release draft became available in May 2019, with a second draft being published in August. While not all employees will need to fill out a new W-4, integrating the new form into payroll systems will still be a central task for employers in the months ahead and must be carefully managed. Let’s look at the implications of the second draft and how to handle them.
What’s different and the same in the most recent 2020 W-4 draft
The second draft of the new W-4 retains the central changes made in earlier editions while introducing a few notable adjustments. Like the previous drafts, it:
- Eliminates all allowances for purposes of calculating tax withholding, as a result of TCJA.
- Introduces a new section on the first page for accounting for multiple jobs and spouse works; this had previously been buried in a worksheet.
- Puts a checkbox for head of household filing status in the first section.
- Follows a relatively simple five-step structure with two worksheets, rather than the old form’s more complex layout with lengthier worksheets.
This latest draft is not the final draft of the 2020 W-4, but the IRS expects no further substantive changes to its contents before it becomes official. That means that employers can begin building the new form into their payroll systems in advance of its eventual implementation.
The second draft doesn’t change the actual withholding calculations contained in the earlier version. However, it does feature a few minor alterations.
First, the word “allowance” has been removed from the form, with its new title being Employee Withholding Certificate. Step 2 is now known as “Multiple Jobs or Spouse Works” instead of “Account for Multiple Jobs.” The process for claiming an exemption has also changed slightly; the most recent instructions tell filers to write the word “exempt” below Step 4(c) instead of 4(d), and not fill out any other parts of the updated Form W-4
Additional guidance on withholding under the new Form W-4 has been included in the Publication 15-T, “Federal Income Tax Withholding Methods,” a draft of which became available on Aug. 13, 2019. This comprehensive document includes full sections for how to handle withholding for employees who have filed with a 2020 or later Form W-4 and for those who have a 2019 or earlier W-4 still on file. This is a key distinction, since not everyone needs to file a new W-4, as we’ll explain below.
The Impact of the Revised Form W-4 on Employees and Employers
According to the IRS, employees who provided their W-4s before 2020 are not required to fill out new ones, although employers may request that they do so. If no new form is submitted, withholding will continue based on the previous valid W-4 submissions. Failure to submit a new W-4 cannot be treated as failure to submit any W-4.
Everyone hired after 2019 must use the new form, however. Additionally, employees hired before 2020 who want to make adjustments to their withholding must also use it. On that note, after the publication of the second draft of the updated W-4, the IRS released an online mobile-friendly Tax Withholding Estimator. This tool may help filers who have self-employment income or capital gains or who expect to work only part of the year make the most accurate withholding estimations.
Employers may maintain parallel systems for old and new W-4s or build a new one based only on the updated form. For the latter case, the IRS has explained how this might be accomplished.
How CIC Plus Can Help With the Transition and Ongoing Compliance of Form W-4
The CIC Plus Tax Withholding service automatically updates all tax forms as requirements change, so employers will comply with the latest requirements.
Our guided forms also help employees fill out the right tax information the first time and avoid having to make corrections. Once this data is entered and captured, our integrations with multiple providers populate it back into the payroll system of record.