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New Form W-4 is here…are you ready?

 

Just when you thought you had everything figured out, the new Form W-4 makes an appearance to kick off 2020.  Why the change?  What does this mean? Are you ready for the change?

Let’s start with “Why the Change?”  Five simple words that have and will continue to change the way we conduct business: Tax Cuts and Jobs Act (TCJA) of 2017.  With the passage of this act, also came modifications to tax rates and withholding calculations, amongst other things.  After revising the withholding table a number of times, we are finally able to put the new W-4 into action starting  January 1, 2020.  

What are the main changes you can expect to see with the new form?

  • Number of Allowances are a thing of the past.  This line item (line 5 on the previous W-4) has been eliminated from the new form.  It has been replaced with a section 2, which addresses multiple jobs or a spouse that works.  The reason for this?  This allows the employee to leverage instances of multiple jobs or to elect for optional higher withholdings.
  • Claim Dependents: Employees will be able to directly enter the expected full-year tax credits related to dependents on Line 3 up to $2,000 for each qualifying child under the age of 17 and $500 for other dependents.
  • Other Adjustments: New to the Form W-4, this section allows employees to enter information related to other income, deductions and withholdings.  Employers will need to convert these entries to a per-payroll period amount to calculate the income tax to withhold.

If you haven’t done so already, here are some tips to help you prepare for the change and hopefully eliminate any obvious issues along the way:

  • Contact your payroll provider to ensure the file structures match the information the new Form W-4 collects so you’re ready to go as of January 1st;
  • Train your HR team and/or managers on how to properly complete the new form;
  • Collect the new Form W-4 from each employee hired as of January 1, 2020 to ensure accurate withholdings;
  • For current employees hired prior to January 1, 2020: they do not need to resubmit a new form simply because of the redesign.  Employers will continue to compute withholdings based on the prior Form W-4 selections.  However, if at any time an existing employee would like to change their election(s), they will need to complete a new Form W-4;
  • Remind current employees to do a “paycheck check-up” using the IRS’ Tax Withholding Estimator if they are concerned about their tax withholdings; and
  • Be patient with your employees in understanding the new form.  This is a change for everyone.

The intent of the new form was to reduce the previous form’s complexity while increasing the transparency and accuracy of the withholding system.  Although it uses the same underlying information as the old format, it replaces the complicated worksheets with more straightforward questions to make withholdings easier for employees.  At least that’s the goal.…..time will tell.

For more information on the new Form W-4, click here .