By Dana Wazny, Legal Analyst – Product Compliance
The Tax Cuts and Jobs Act (TCJA) has eliminated the use of exemptions (personal or for dependents) to determine withholding allowances for the purpose of payroll calculations. As a result, the Internal Revenue Service (IRS) is redesigning the Form W-4 to simplify the withholding system, replacing the old complicated worksheets with more direct questions intended to make the withholding process easier and more accurate.
An updated draft of the new 2020 W-4 was made available in August, and the good news is that this version is much shorter for employees to complete than the current version. The draft Form W-4 instructions indicate that withholding will be based on marital status (single, married filing jointly or head of household), applicable standard deduction and tax rates with any credits deducted for children and/or dependents. The intended result is to make withholding more accurate and transparent.
There are only five steps in the draft version of the new 2020 W-4, and those employees with the most basic tax situation (single, one job, no tax dependents, and no other income or deductions) are only required to complete Step 1 and Step 5. Steps 2, 3, and 4 are optional for employees with more complicated tax situations.
Existing employees will not be required to resubmit a new 2020 version of the Form W-4. Employers should continue to compute withholdings based on the form that was previously submitted. However, new employees are expected to receive the redesigned format.
This is where it really gets complicated for employers. Since withholding for current employees who don’t complete a new form will need to be based on allowances, but employees who file the new 2020 form will not be based on withholding allowances, employers should rely on the IRS Publication 15-T’s worksheets for withholding calculations. That says “worksheets” (plural) because there are five of them!
When will the 2020 W-4 Form and its relevant worksheets be finalized? The IRS has indicated that they will be released in “late fall” on their regular schedules, which is typically in November because employees whose tax situation has changed for the next year have to file by December 1.
Keep in mind that since allowances are going away and new fields may need to be exported from Cadient Talent to your payroll system, please be advised that this will have integrations impact, and resources will be needed to support these changes. If you are already aware of how your HR or payroll system will change, please reach out to your Cadient Talent representative to provide any critical details.
Cadient Talent continues to monitor for updates by the government. We will notify you once the new form is finalized and made available to us. For more information, please refer to the IRS Frequently Asked Questions on the draft 2020 Form W-4.