June 17, 2020

Almost anyone who has started a new job in the U.S. has filled out Form W-4, which tells employers how much money to withhold from paychecks for federal income tax. At the end of 2019, the IRS made significant changes to the form. While the revised form calls for more information from employees, it presents it in a way that may prove easier to understand and fill out. Here is what employees and employers should know about the new Form W-4.

What Is Form W-4?

“Withholding” generally refers to amounts deducted from employees’ gross wages for federal income tax. The amount of tax an employee will owe depends on multiple factors, including whether the employee will file singly or jointly, the number — if any — of dependents they have, and the amount of deductions they anticipate having. Employees use Form W-4 to notify the employer how much withholding to take from their paychecks.

What Is Different About the New W-4 Design?

If one were to compare the layout of the 2020 W-4 to the 2019 form, the first difference they might notice is the simpler layout of the new form. Instead of instructions packed tightly onto the first page in a tiny font, the new form begins with the fields that employees must complete. The instructions begin on the second page.

Fewer Sections to Complete

The old Form W-4 had seven sections packed into less than half of the first page. The first few sections simply asked for identifying information. The amount of withholding was based on the information provided in sections 5 and 6, but those sections were not at all intuitive for a vast number of people. The new form has five sections covering the entire first page, but with a layout that is considerably less dense.

No Withholding Allowances

Before this year, Form W-4 asked employees to state how many “allowances” they were claiming. The more allowances they claimed, the less their employer would withhold from their paychecks. In other words, more allowances meant a bigger paycheck. Tax deductions and credits both appeared as allowances on the “Personal Allowances Worksheet,” which was one of three worksheets attached to the old W-4.

The new Form W-4 separates “allowances” into dependent tax credits, deductions, and other adjustments to withholding. It includes two worksheets instead of three: a “Deductions Worksheet” that compares estimated deductions to the standard deduction, and an optional “Multiple Jobs Worksheet.” It also provides a rather comprehensive income worksheet to help employees with multiple jobs calculate extra withholding.

Do Employees Need to Fill Out a New Form W-4?

If an employee’s information has not changed, they do not need to complete a new W-4 using the revised form. Employers should start using the new form for employees whose first paycheck is in 2020.

Will the Amount of Withholding or Refunds Change?

The underlying requirements for income withholding have not substantially changed. The purpose of the new form is to make it easier to understand and complete. An employer will withhold the same amounts regardless of whether an employee has submitted a new Form W-4 or not.

If you need assistance with a tax-related question, please contact the tax advisors at the Enterprise Consultants Group today at (800) 575-9284 or online to see how we can help you.