Updated for 2020: what you need to know about the new W-4
While the IRS just introduced its new version of the W-4, some states have already implemented new forms of their own as state and federal taxing agencies scramble to replace withholding forms that may not produce withholding amounts consistent with the 2017 tax overhaul or with state income tax purposes.
The new federal version of the W-4 was designed to more accurately reflect changes mandated under the Tax Cuts and Jobs Act of 2017 (TCJA) that include the elimination of the personal or dependency exemptions and the doubling of the standard deduction.
“Starting in 2020, the IRS noted, income tax withholding is no longer based on an employee’s marital status and withholding allowances, tied to the value of the personal exemption. Instead, income tax withholding is typically going to be based on the worker’s expected filing status and standard deduction for the year.”
– Michael Cohn, Accounting Today
The modified federal W-4 Employee Withholding Allowance Certificate was released December 31, 2019. You can find it here.
Earlier Revision Rated "Huh?" By Tax Professionals
Tax professionals did not think much of the agency's earlier attempt to redraft the form. Following criticism from both the National Association of Enrolled Agents and the American Institute of Certified Public Accountants that a prior version of the form was too complicated, likely to produce under-withholding and created privacy risks for employees asked to disclose household income to their employers, the IRS announced that they would have another version of the form ready for use in 2020.
While the 2019 version of the tax form did not look much different from the 2018 W-4 (according to a statement from the IRS on its website), the IRS released an updated withholding calculator and urged taxpayers to use it to review their tax situation to ensure they were not having too little or too much withheld from their paychecks. The calculator has been updated again for 2020 to reflect the recent changes.
Changes to the Tax Withholding Estimator include:
- A customized refund slider that allows taxpayers to select the dollar range of refund they’d like to receive to determine how their W-4 should be filled out
- An ability to anticipate employee bonuses to indicate whether tax would be withheld
- A mobile-friendly design
- Handling of pension income
- Social Security benefits
- Self-employment tax
Find out if you would benefit from using the calculator by viewing the IRS’ frequently asked questions.
More States Adopt their Own Withholding Forms
At the state level, some states like Oregon – which has its own income tax requirements and used the federal W-4 to calculate withholding – have created a state W-4 because the federal form is no longer consistent with the number of allowances used in calculating state income tax withholding.
The process has generated a fair share of exasperation, not all of it directed at the IRS, which was tasked with trying to administer a complicated new bill that went into effect within weeks of its passage and left many tax professionals scrambling to decipher what had changed. Although the the TCJA is two years old, payroll tax withholding can still be complicated. There are a lot of taxing agencies and their guidelines and deadlines are subject to frequent change.
Get Help Keeping Up With Tax Changes and Challenges
If keeping up with tax changes have you exasperated, give us a call or click on the link below to learn how we can help. At Payroll Tax Management we have deep expertise in helping our clients unravel the tangle around state and federal withholding and payroll taxes. We are a special source of comfort to clients managing the complex payroll processes that come with a multistate workforce.