AccuPay has written 2 previous PayDay educational emails about the brand new and totally different W-4 form which is effective January of 2020. As you read this final PayDay on this subject matter, we will provide links to our previous PayDay’s for your review of this subject matter. We expect that many employees will be confused and have questions about the radically different W-4 withholding tax forms, and employers need to know what their requirements are regarding the new W-4 forms, as well as “best practice” suggestions to help their employees.
What’s the big deal about the January 2020 W-4 Forms?
For as long as we all can remember, employee W-4 federal income tax withholding forms have requested the same information, are you married or single, and how many “allowances” are you claiming. Due to income tax law changes resulting from new tax law effective January of 2018, “allowances” no longer have any income tax relevance (they do for most states, but not the IRS), so the IRS has spent the past 2 years creating a new W-4 which is consistent with current federal income tax law—-the result is a brand new W-4, which was just released in final form within the past week. The new W-4 does not ask about an employee’s number of “allowances”, but does contain “5 steps” of information which an employer will use to determine an employee’s federal income tax withholding per brand new IRS tax withholding tables. The new W-4 forms are essentially a “mini personal income tax projection” to include income amounts, deductions, tax credits, filing status, etc—the exact types of items which individuals report in their annual Form 1040 federal income tax returns.
Since these new W-4 forms are so different than the ones we have used for decades, we expect that employees will have many questions when completing them—-plus ongoing employees can use either the new W-4 form or can stick with their current W-4 form on file which is based on “allowances”.
Does this require that employers have tax withholding tables for each type of W-4 Form?
Yes. Employers should make sure that their payroll system is programmed with tax tables for both types of W-4 forms. Employees will be “tagged” as to W-4 type (pre-2020 based on allowances or brand new 2020 forward based on “5 steps”), and the payroll tax tables used will be different based on the type of W-4 on file with the employer. AccuPay’s withholding tables will include both types of W-4 forms so that withholdings are correctly calculated based on which of the 2 types of W-4 forms applicable to each employee. All “new” employees hired after 2019 must complete the new W-4 form, and any ongoing employee who wishes to change their W-4 after this year must also use the new W-4 (employees can not complete an old version of the W-4 after this year).
How can an employee determine which W-4 to use?
A current employee who continues employment into 2020 can continue to use their existing W-4 form, with “allowances”, OR can complete a new W-4 form with the “5 steps”. The new W-4 form is intended to be more accurate as to withholding correct amounts consistent with current federal income tax law, but it will be “different” and in some cases more complex for employees to complete. An individual who is hired after this year must complete the new W-4 form, as do individuals who wish to change their existing W-4 form after year-end.
Can employers require all employees to use the new W-4 Form?
Not for current employees who continue into 2020. Employers can encourage employees to use the new W-4 form, but can not require them to use the new form. Employees who do not complete the new forms must have withholdings based on their existing pre-2020 W-4 forms they currently have on file with their employers.
Should employers communicate these changes with their employees?
Employers are not required to proactively advise employees about the new 2020 W-4 forms, but AccuPay encourages employers to notify existing employees about the new forms (and also notify them that they are not required to use the new form until they wish to change their W-4 form). Our first PayDay on this subject matter contained a recommended employee notification which employers can “cut and paste” our narrative to advise employees if they so choose.
We do not recommend that employers advise their employees on how to complete their W-4 forms (or which one to complete for current employees), but we do encourage employers to provide any or all of the following educational materials to their employees to help them make their own decisions on their W-4 submissions to employers:
Our first PayDay titled New W-4 for 2020–No Exemptions, contains some employee guidance on how to complete the new W-4 forms—feel free to hand this PayDay out to your employees.
Our second PayDay titled AccuPay Guide to Completing New W-4 contains more specific and practical guidance to employees on how they can complete the new W-4 forms—to include which “steps” should be included for “normal” tax patterns and which steps (all of them) will provide the most accurate withholdings for more complex tax factors in an individual’s tax profile—we tried to make this “practical” for easier employee use.
The IRS has an online video/taped webinar instructing individuals on how to complete their W-4, step by step, with audio and visuals of the W-4 (70 minutes in length).
What about state withholding certificates?
Each state has had different withholding requirements in the past, some simply using a copy of the employee’s W-4 form with allowances, and many having their own, unique W-4 withholding form. Indiana uses a Form WH-4 for state/county tax withholdings (with the county information being included on the WH-4 form). We expect Indiana to announce they will continue using the WH-4 form for state and county income tax withholding purposes, and we also have seen and expect most other states to continue or initiate their own unique withholding forms which are consistent with each state’s income tax laws. Every employer should check with the states they withhold in as to the withholding forms to be used for January of 2020 forward
In Conclusion
We expect many employee questions about the new federal W-4 forms, and AccuPay’s goal is to help clients with answers to employee questions and continuing research/education as new ideas arise as to “best practices”. Our sense is that the majority of people are unaware of their W-4 options and requirements since the topic does not seem to have gotten much news coverage. We believe much more will be written about this subject during the next few months, as employees become more familiar with their options and requirements. AccuPay’s staff has been discussing this W-4 issue for some months now, so we expect to be prepared to help our clients deal with employee questions, multiple tax withholding tables, etc