The IRS will issue a newly revised Form W-4, Employee’s WithholdingCertificate, to be used beginning in 2020 to reflect changes included in the Tax Cuts and Jobs Act of 2017 and help employees improve withholding accuracy. The redesigned form will no longer use withholding allowances to establish income tax withholding but will instead use data provided by the employees with amounts to increase or reduce taxes and wage income subject to income tax withholding. The IRS issued its second revised draft versions of Form W-4 and Publication 15-T in August so employers may begin programming payroll systems in preparation for the changes. Beginning January 1, 2020, new hires must use the new Form W-4. Current employees aren’t required to complete a new Form W-4 after 2020, unless making a change in withholdings. Keep in mind your state may still require using the current Form W-4 or a state-specific Form W-4 and not the new one. This could create additional complications for payroll each pay period.
Tips: Start educating yourself now as to any potential changes you will need to make to comply with the revised Form W-4. The IRS has issued FAQs that may help you plan any necessary payroll system changes. Although the final 2020 version of the form still hasn’t been published and therefore isn’t yet available for actual use by employees, the IRS has said it won’t make any further substantive changes to the second draft which is currently posted online. You might want to alert your employees to the impending changes. In the meantime, they should use the IRS Tax Withholding Estimator to help them decide whether they should make any withholding adjustments on their 2019 W-4. Once the final 2020 version of the Form W-4 is available, you should encourage employees to take a fresh look at their withholdings using that form, to reduce the likelihood of unexpected tax liabilities. Also, consult your tax attorney, accountant, or payroll adviser for further information about the changes.