2020 Form W-4 Reversion FAQ

January 2, 2020 — Every year-end, the IRS releases the newest Form W-4 to use for the upcoming tax year. Since 1987 the form has carried forward year over year with the same layout and fields for completion, but with adjustments for tax table changes and date references. For the 2020 tax year, the IRS updated Form W-4 to better align with the Tax Cuts and Jobs Act passed in 2017. Therefore, the 2020 Form W-4 reversion, effective January 1, 2020, has significant changes compared to prior year revisions and will look significantly different to taxpayer employees and employers as a result.   

Most of us were accustomed to the election categories of Single or Married and listing the number of our personal allowances. For example, Single with zero personal allowances, or Married with four allowances.

However, the newly designed Form W-4 now aligns with how tax reform significantly changed the filing of individual tax returns—personal exemptions were suspended and the standard deduction was increased – and the 2020 Form W-4 removes the method of using allowances to calculate federal income tax withholding.

The new Form W-4 has five steps, but only steps 1 and 5 are required to be completed by the employee.

Steps 2-4 are optional and help the taxpaying employee to consider other sources of income and deductions that will have an impact on their federal tax liability. 

The 2020 Form W-4 can be viewed here.

Frequently asked questions:

Asked by employers

Which employees are required to complete the form?

• Only new hires hired as of January 1, 2020 and current employees hired prior to 2020 who choose to adjust their withholding will be required to complete the form.

As an employer, can we require all employees to complete the 2020 Form W-4?

• No, employers may not require all employees to complete the form. Employers can ask that employees do so, but they cannot enforce completion.

• Due to the fact that the IRS is not requiring all employees to complete the new version, current employees with a valid 2019 or older W-4 will be grandfathered in to continue using the valid W-4 on file for them. The payroll system will need to contain the previous method for allowances as part of the programming.

• Payroll and software providers should already be implementing system updates to allow either form to be selectable under the employee tax settings fields. Every payroll system is different, but employers can expect to choose between “Previous Form W-4” or “2020 Form W-4” for each employee in the employee profile sections. Check with your provider to understand their timeline for this implementation of selectable form types.

• The IRS understands that this will be a time of transition for employers and employees, and with that in mind, there is a free tool built by the IRS intended to help small businesses that need to manually calculate the federal withholding under the old and new methods. Reminder: the wage input to run the calculation with this tool will need to reflect Federal Taxable Wages for the period; For example, taking gross wages less any benefits allowed non-tax treatment such as 401k deferrals into consideration.
  

  The free IRS tool is available by clicking here.

• In years past, the IRS would release Notice 1036, Early Release of Percentage Method Tables for Income Tax Withholding near the end of the year. The notice was to be used during the interim until Publication 15 was finalized, and once it was finalized, generally, in January of the current year, the IRS would release Publication 15, Circular E, with the federal withholding tables to use for the remainder of the year. However, with the Form Reversion, the IRS drafted Publication 15-T, which contains the federal withholding tables to be used by employers.
  Form 15-T is available by clicking here.

• Employees are required to re-elect exemption in every tax year in which they qualify, so their 2019 exemption would expire on February 17, 2020.The employee needs to complete the 2020 Form W-4 with that status indicated. 

Where is the exempt field on the 2020 Form W-4?

• The IRS modified the original option for electing exempt from federal income tax withholding on the 2020 W-4 version. Upon first glance at the revised form, it may appear that there is no option to mark exempt, but within the directions of the 2020 Form W-4 employees will find that in order to mark exempt, they will need to write it in under Section 4C as a non-perjurious statement that they meet the conditions to elect this.
• As a reminder, exempt from withholding does not mean exempt from income tax.

How can we prepare for this form change?

• Check with your payroll service provider to see what they are doing to update software to allow calculations using both form types.
• Notify employees of the new form and update internal employee form portals/internal sites.
• Allow extra time for processing payrolls in January.
• Review state W-4 rules based upon employer business locations and employee work locations.
• Consider a revised intake process for collecting the new Form W-4s from employees.

How can we, as the employer, assist our employees with the form change and questions that arise?

• Employers should not provide tax advice to their employees. Below are suggestions to ease the process across large and small employee groups:
  • Here is a sample letter employers can provide their employees during this transition.
  • Encourage employees to visit the IRS website to access the paycheck checkup tools and help guides. Remind employees that they should check with their personal tax advisor on specific questions regarding completion of the form.
  • Provide guided directions on required fields within Steps 1 and 5 to ensure a valid form W-4 is turned in—hopefully, one that negates the need for follow-up with individual employees.  Provide Form W-4 instructions from the IRS so employees can determine their tax situation when considering whether to complete optional Steps 2-4.

• New employees who fail to complete Form W-4 are to be treated as if they checked Single or Married Filing Separately in Step 1(c). An employee hired on or before December 31, 2019, who was paid wages in 2019 or earlier, should be treated as Single/0 under the 2019 W-4.

• This will be an ongoing compliance area to monitor. Prior to the form reversion, more than half of the 50 states conformed to reference the federal Form W-4 in claiming state withholding or had no requirements for either federal or state form type. But with this reversion, states are coming forward with their own state-specific Form W-4s required to be completed and used for state withholding—Minnesota and Wisconsin are two of the states following this method. Employers should review their employee work and residency states to ensure that they are facilitating compliance.

Asked by employees

•  Due to the removal of allowances, there is no easy method for mirroring the effects of the old form to the new. That being said, employees are encouraged to use the IRS tools available to determine their withholding.
• The W-4 instructions provide guidance that after a payroll cycle has been run, employees should review their withholding to determine if too much or too little was withheld, and then complete an updated form to adjust their withholding closer to what is desired.

•  Were you hired on or after January 1, 2020? If so, you will be required to complete the 2020 Form W-4. 
• Were you hired before January 1, 2020, and have a valid W-4 (2019 or previous) on file with your employer? If so, you are not required to complete the 2020 Form W-4. 
• Are you a current employee, hired prior to January 1, 2020, who would like to adjust withholding? If so, you will be required to complete the 2020 Form W-4.

How do I claim an exemption from federal income tax withholding?

• First, review page 2 of the 2020 Form W-4 to determine eligibility for claiming exempt status.  
• If eligible, follow instructions to write “exempt” under line 4(c) of the form.

• Visit the IRS page for free withholding tools and calculators.

Resources for employees and employers

Employees:

• The IRS provides paycheck checkups to determine withholding.
• Reach out to your personal tax preparer for assistance in completing the new form.

Employers:

• Utilize the American Payroll Associations Employer letter template to notify employees.
• Utilize the IRS Excel Spreadsheet called Income Tax Withholding Assistant for Employers – provided free by the IRS to help small employers calculate the amount of federal income tax to withhold from their employee’s wages.
• Utilize IRS Publication 15-T for more information on using the withholding tables with the new form.
• Further FAQ content can be found on the IRS website.