New W-4 for 2020
The IRS has completely redesigned the W-4 for 2020. The draft version of the form was released in August. The IRS should release the final version of the form soon. A draft of Publication 15-T describing the tax calculations to use based on the new form was also released last month.
The key difference between the old and new W-4 forms is that the new W-4 does not use allowances. Instead, the employee will provide dollar amounts that will result in more accurate withholding calculations.
Who needs to use the new form?
Current employees do not need to fill out a new W-4 just because the form has changed. The instructions for calculating withholding amounts and the tax tables provided by the IRS will continue to work using the old allowance based system. If an employee needs to adjust their withholding amounts for the new year, then they will need to use the new form.
New employees hired in 2020 will fill out the new W-4 form. If you have not already seen the new form, we recommend you download it and become familiar with the new instructions. Employees that are used to filling out the old form will likely need some help at first with the new form.
Changes to the payroll program
We have modified the employee setup windows to handle entering information from either the old or the new form. All existing employee accounts will continue to show their settings from the 2019/prior W-4 forms. If an employee fills out the 2020 W-4, you will select that option and new entries that corresponding to the new form will appear.
The IRS has added the “Head of Household” filing status as an option in the employee’s personal information section. The IRS has provided a third tax table for this filing status.
In an effort to improve the withholding accuracy for households with two jobs, the IRS has also published alternate withholding tables to use when an employee indicates there are two jobs. This means that three additional tax tables will be used (one for each filing status) when there are two jobs.
When we release the year end update, it will include a total of six tax tables for federal withholding:
- Single/one job household
- Married/one job household
- Head of Household/one job household
- Single/two job household
- Married/two job household
- Head of Household/two job household
A “first look” program update for The Farmer’s Office and The Labor Contractor’s Office has been released with the changes to the employee setup windows and federal withholding calculations. Use the Check for Updates option on the Tools menu to download and install the latest version.
This will not be the final year end update and will not include any 2020 tax rate tables, but it will give you a little additional time to get used to the new data entry layout and train your data entry personnel on the new procedures and new form.
We are still waiting for the release of final tax tables from the federal and several state governments and putting the finishing touches on some program enhancements. The year end update will likely be released during the week of the 23rd.
In Part 2, we will take a look at the new dollar amounts on the new W-4 and the changes we made to the employee setup window to handle them.