Proposed Form W-4 Design for 2020
Who is Impacted
Any employers that collect a Form W-4, Employee’s Withholding Certificate Allowance, or employees that provide this form to employers will be interested in proposed changes regarding the Draft 2020 revision of this form.
What changed
In 2017, the Tax Cuts and Jobs Act (TCJA) made small but significant changes that required major revisions to the employee withholding regime. After working closely with the payroll and tax communities, the Internal Revenue Service (IRS) and Treasury Department redesigned Form W-4 in a way they believe will best serve taxpayers. On May 31, 2019, they issued a draft of the 2020 Form W-4, Employee's Withholding Allowance Certificate and later released FAQs about the new design. The IRS and Treasury expect that the new form will make it easier for employees to withhold accurately starting in 2020. Below are some key changes to note in the draft Form W-4:
· Similar base level information required. Employees will enter nearly the same information as prior year forms. Instead of the complicated worksheets, employees will respond to more straightforward questions.
· No more claims for personal or dependency exemptions. This change increases privacy, simplicity and accuracy. In the previous forms, the value of a withholding allowance was tied to the amount of the personal exemption, which the TCJA removed.
· Five step form. Only two of the five steps will be required for all employees. Steps 2-4, if applicable, are intended to increase the accuracy of withholding to employees’ tax liability.
o Step 1, enter personal information (name, filing status, etc.).
o Step 5, sign the form.
The IRS and Treasury intend that the new 2020 Form W-4 will make it easier for taxpayers to have their withholding match their tax liability. Further, the new form should provide simplicity, accuracy, and privacy for employees while minimizing the burden for employers and payroll processors. In an effort to continue working with the industry, the IRS will accept comments until July, 2019.
Employers should note the following with respect to usage of the new Form W-4:
· The May 2020 Draft Form W-4 is not for current use. For 2019, employees should continue using the current Form W-4.
· Employers may continue to compute withholding based on the information from the Form W-4 most recently submitted by its employees.
· Employees who submit Forms W-4 prior to 2020 will not be required to submit a new form due to this redesign.
· With respect to adjustment for non-U.S. persons, the IRS will provide instructions in the 2020 Publication 15-T, Federal Income Tax Withholding Methods, on the additional amounts that should be added to wages to determine withholding for those employees. Non-U.S. employees should continue to follow the special instructions in Notice 1392 when completing their Forms W-4.
In terms of a timeline, look for the IRS to publish the following:
· June 2019. Draft Instructions to the Draft 2020 Form W-4 will be released.
· Mid-to-late July 2019. Near final draft of the 2020 Form W-4 expected, so as to provide ample time for employers and payroll processors to implement changes before the IRS publishes the final version.
· November 2019. Expected publication of the final 2020 revision of Form W-4.
How to Implement
As employers prepare to collect new Form W-4 in 2020, they should consider the following:
· Conduct your own ‘Paycheck Checkup.’ Since the IRS encourages employees to do a Paycheck Checkup to see if they are withholding the right amount of tax from their paychecks, employers should do the same. It may make sense to encourage employees to take a look at their withholding if they have had major life changes, such as a marriage or a new child.
· Identify whether any systems, applications, or software will be updated in time for the 2020 Forms W-4.
· Confirm with vendors that they will support and be ready to accept information required on the 2020 Form W-4.
· Update processes and procedures for collecting, reviewing, and storing information on Form W-4. More specifically, determine whether two processes will be required for Forms W-4 submitted before 2020 and after 2019.
o Ideally, the same set of withholding tables will be used for both sets of forms, so the IRS intends that these tables will apply to systems for new and old forms.
· Be prepared to treat employees hired after 2019, who do not submit a Form W-4, as a single filer with no other adjustments. This means that the standard deduction with no other entries will be taken into account in determining withholding.
· Begin requiring employees to use the redesigned form in 2020. Also, any employees hired before or after 2020, who wishing to adjust their withholding must use the redesigned form.
· Employers may resolicit new 2020 Forms W-4 from all employees hired before and after 2020; however, the IRS requires that employers explain:
o The employees are not required to submit new Form W-4; and
o If they do not submit a new Form W-4, withholding will continue based on a valid form previously submitted.
· Update training materials, new hire onboarding packages, and any annual updates to employees to update Form W-4.
· Be sure to comment if this updated form impacts you by July 1, 2019, to [email protected].
· Look for additional publications and guidance from the IRS in the coming weeks!
Will the new Form W-4 impact your business? Let us know how you will implement processes, procedures, and systems to prepare. Comment on LinkedIn or email us!
This document contains general information only and is not a substitute for accounting, tax, or any other professional advice or services. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.
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