Since the 2017 Tax Cuts and Jobs Act, the IRS has been revising Form W-4. Now comes the second draft of the 2020 Form W-4, the Employee’s Withholding Certificate. But the August 2019 release came with a disclaimer. Expect new but not substantive changes in the final draft. The new form is set for release before the year ends.
Find out what you can do and what resources can help your business and employees prepare for this change.
Differences in payroll and recordkeeping
Generally, existing rules remain the same. The W-4 is the form employers use to calculate tax withholdings from employee paychecks. Still, you may be wondering a few things.
1. Are current employees required to resubmit a W-4 in 2020?
Employees hired before 2020 are not required to submit a new form. But if an employee wants to change their withholdings in 2020, they must use the new form.
2. What’s the best way to keep up with new changes?
If you outsource payroll with an accountant or bookkeeper, leverage their expertise to ensure accuracy and compliance with the new form. You can also keep up with the latest news and policy changes in the IRS Newsroom.
3. Is it time for a payroll software upgrade?
The new form has raised questions about existing payroll software and whether a business will need to operate on two systems. If manual and DIY payroll has been your go-to method, it may be time to consider professional help.
Point your employees in the right direction
Based on the new form, some factors that can affect the allowances employees can claim include:
- The number of exemptions an employee can take on a tax return.
- Whether an employee has income from more than one job.
- What deductions, adjustments to income, and credits an employee expects to have for the year.
It may be tempting to help during a transitional period like this. But remember that employers and company payroll professionals are not allowed to provide “tax advice” to employees. Instead, direct them to IRS’ ready resources.
Developed by the IRS, this online tool helps taxpayers identify their withholding to make sure they have the right amount of tax withheld from their paychecks.
From the purpose behind the redesign to varying tax situations, the IRS addresses burning taxpayer questions.
With the expected release coming up and year-end being the peak season for many businesses, it’s best to get your processes and employees on board sooner rather than later. Leave everyone wiggle room, in case the final version differs from what’s been shared so far.