The IRS has introduced a re-designed Form W-4 and removed allowances from the computation of withholding. The changes will apply to new employees who join your practice and current employees that file an updated Form W-4 in 2020.
We recommend that you let your employees know about the change. They will likely have some questions! We’ve put together a quick FAQ below, but feel free to reach out to us if you have any additional questions that are not answered here.
Why Did the IRS Change Form W-4?
The new form is a result of the 2017 Tax Cuts and Jobs Act (TCJA). After the tax law reform was introduced, allowances — which were tied to the amount of the personal exemption — no longer provided an accurate computation of withholding for some taxpayers.
The IRS stated: “In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.”
The IRS also saw this as an opportunity to simplify the W-4 Form in an effort to reduce the form’s complexity and increase the transparency and accuracy of the withholding system.
The new form has a similar design as the previous W-4 Form, but the worksheets that employees previously filled out have been replaced by direct questions that help produce more accurate answers.
When Should a Current Employee Update Their W-4?
Current employees can review whether they need to update their W-4 before walking through the process of the actual update.
The IRS has provided a Tax Withholding Estimator tool to help employees understand whether they have the right amount of tax withheld from their paycheck.
The IRS calls this a “paycheck checkup” to ensure the following objectives are met for employees:
- Protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
- Have less tax withheld up front to receive more income in their paychecks, but receive a smaller refund at tax time.
After completing the Tax Withholding Estimator, your employees can determine whether they need to update their withholding. If so, they need to fill out the new W-4 form (the Employee’s Withholding Certificate) and submit the form to you or your payroll provider depending on how your payroll is set up.
If they do not need to update their withholding, then they do not need to complete the new W-4 form.
Need Help With the New W-4 For Your Employees?
You may have questions about how to distribute the new W-4 forms, who needs to fill out a new form, and how to handle a mix of employees submitting the new form and not submitting the new form. We are available to help answer your questions during this transition.
Make note, though, that we cannot advise your employees on the appropriate level of withholding or on the correct answers to provide on their W-4s.
If your employees have questions about how to complete the new form, we recommend that they review guidance on the IRS website, use the Tax Withholding Estimator tool, or contact their personal tax advisor for assistance.
For assistance with the new W-4 form or any other accounting and finance needs for your practice, contact us today.