The IRS has completely changed up income tax withholding with the release of the new W-4 for 2020. Prior to the release of the 2020 form, the IRS had not made significant changes to the W-4 since the 1980s. The new form impacts all employees hired after the effective date, as well as any current employee who chooses to change their federal tax withholding.
Changes to the 2020 Form W-4 were intended to simplify the process of reporting the amount of federal withholding an employee wants from each paycheck, and it includes straightforward questions on worksheets that would help provide a more accurate calculation of their federal withholding.
Among the most significant changes to the 2020 W-4 is that allowances no longer exist. The new form contains a series of numbered steps. This change is meant to increase the 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 the law, currently, you cannot claim personal exemptions or dependency exemptions.
Step 1. Enter personal information.
Step 2. Indicate multiple jobs or if the spouse works.
Step 3. Claim dependents.
Step 4. Make other adjustments including:
- Step 4(a): Investment and retirement income.
- Step 4(b): Deductions other than the standard deduction.
- Step 4(c): Any extra tax withholding per pay period.
Step 5. Sign the form.
- The only two steps required for employees submitting a new form are Step 1, where they enter personal information such as their name and filing status, and Step 5, where they sign the form.
- If Steps 2, 3 or 4 apply to employees and they choose to provide that information, their withholding will more accurately match their tax liability if they complete them. Employees, however, can adjust their withholding in Step 4(c) without sharing additional information.
Employer Requirement to Furnish the New Form W-4
- All new employees hired as of Jan. 1, 2020, must complete the new form.
- Current employees are not required to complete a new form but can choose to adjust their withholding based on the new form.
- Any adjustments made after Jan. 1, 2020, must be made using the new form.
- Employers can still compute withholding based on information from employees' most recently submitted Form W-4 if employees choose not to adjust their withholding using the revised form.
Avionté Withholding Tables Prior to 2020 & 2020 Forward
The IRS provided guidelines regarding separate withholding tables for employees who were hired and paid prior to 2020 & employees who were hired and paid beginning as of Jan. 1, 2020. This was decided to not require all employees within an organization to complete a new W-4 in 2020 & allow for employees hired prior to 2020 to keep their withholdings at the same rate (unless requested to update). In order to accommodate this within the Avionté Core App, a secondary tax set tab was created to house the new 2020 federal withholding tables, titled: 2020 Tax Set Up.
2020 W-4 & Tax Set Up Training Webinar
Avionté recently hosted a live webinar focusing on the new Federal W-4. In this webinar, we walk through activating the 2020 Federal W-4 electronic form templates and entering 2020 W-4 form information into Avionté.
This webinar was recorded and is now posted to our Knowledge Base: 2020 W-4 & Tax Set Up
Income Tax Withholding Assistant for Employers
Due to the significant changes to Federal Income Tax Withholding in 2020, the IRS offers employers their own withholding calculator to assist with determining the correct amount of Federal withholding for their employees.
The Tax Withholding Assistant is available in Excel format, here.
For more information, and before acting on any information contained within this article, Avionte recommends consulting with your legal counsel. This information should not be construed as, and does not constitute, legal advice.
Compliance Questions or Suggestions? Email us at Compliance@avionte.com