Ahhh, tax season. Just like clockwork, it is upon us once again. And with it comes forms, forms, and more forms! As much as we might roll our eyes at the mounds of forms required of us by the Internal Revenue Service, I will say that the IRS website does make accessing the forms, instructions and other valuable information fairly easy.
The new Form W-4 2020
Although we don’t provide tax services, our bookskeep team does stay apprised of changes in the basic forms so that we can help our clients stay informed about changes that may impact their business. One of the changes recently released is the redesigned IRS Form W-4, Employee’s Withholding Certificate.
If you are a business owner, ecommerce or otherwise, and you have employees on your payroll, then you are most certainly familiar with the W-4. It’s the form that all your new employees are required to complete for you to withhold the correct amount federal income tax from their wages. The IRS recommends that your employees complete a new Form W-4 each year as well as any time their personal or financial information changes.
On December 31, 2019, the Internal Revenue Service (IRS) released a new Form W-4, redesigned with important changes for business owners and their employees. Revising the form was needed to accommodate a recent law that changed the medical expense deduction floor from 10% to 7.5% for the year 2020. There were also a few other minor changes made to the form for clarification.
According to the IRS, the previous Form W-4 (prior to December 31st) may still be used, but those forms will have the incorrect percentage shown. However, the withholding tables have been designed so that they will work with both the new and prior year forms. Employees hired prior to 2020 will not need to complete new forms if the appropriate adjustments are made. Employees hired in 2020 and anyone who makes withholding changes during 2020 will need to complete the new form.
Many of my CPA colleagues recommend employees use the IRS’s Tax Withholding Estimator to prepare the needed information at home because previous tax returns can be helpful. Then the employee will be ready to complete the form at ease at your workplace.
Below are just a few of the top Q&As taken from the IRS website:
Why redesign Form W-4?
The new design reduces the form's complexity and increases the transparency and accuracy of the withholding system. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.
What happened to withholding allowances?
Allowances are no longer used for the redesigned Form W-4. This change is meant to increase transparency, simplicity, and accuracy of the form. 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.
Are all employees required to furnish a new Form W-4?
No. Employees who have furnished Form W-4 in any year before 2020 are not required to furnish a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee's most recently furnished Form W-4.
There is a great deal of information on the IRS website about the W-4 form, for you as an employer and for your employees. We recommend that you take some time to visit the IRS website and read up on the changes. Your employees can also learn what the changes mean for them by reading the FAQs. It may sound like a bit of a boring read, but it’s worth the time to make sure you’re in compliance with the latest requirements! And if you have independent contractors working for your company, check out our recent blog about preparing 1099s!
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