Finalized Employee’s Withholding Certificate 2020
The IRS on Dec. 5 released a significantly revised Form W-4 for employees’ use when calculating their 2020 federal income tax withholding. The finalized form follows a draft version the IRS issued in May seeking comments from tax preparers and payroll companies.
For the 2019 tax year, there are no withholding allowances, and “allowances” was removed from the title of the form to reflect this change. Instead of claiming a certain amount of allowances based on exemptions, employees will now be asked to input the annual dollar amounts for:
- Non wage income, such as interest and dividends
- Itemized and other deductions
- Income tax credits expected for the tax year
- Total annual taxable wages for all lower-paying jobs in the household (applies to employees with multiple jobs)
According to the IRS, “Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.” However, employees hired after 2019 or employees wanting to make changes after 2019 must use the new form. Employers will have to adjust their systems accordingly.
The purpose of the new Form W-4 is to improve the accuracy of withholding and to incorporate the changes created by the Tax Cuts and Jobs Act of 2017. The IRS indicated that the form will make it easier for employees to simply and accurately calculate how much income tax they should set aside each paycheck.
Only minor language changes were made to the W-4 since the prior draft issued in May, most notably, according to the IRS, more language under “Your Privacy” on page 2 “to help the taxpayer understand exactly what checking the box in step 2(c) may do to withholdings.”