Most employees fill out a W-4 form when they first start a job and never think of it again. But the start of the new year is a good time for them to review their tax status and decide if it makes sense for them to submit a new 2020 W-4 form.
This year, the IRS has changed the tax withholding process and issued a new W-4 withholding certificate.
The form is simpler and should help employees more accurately calculate the amount to withhold from their paychecks. You can download the form here.
To kickstart your 2020 payroll and withholdings efforts, here are 5 things you and your employees should know about the new W-4.
1. There are no longer any withholding allowances. Employees may need to claim dependents and/or complete the worksheet for deductions.
2. There are changes this year to the tax laws for those who itemize deductions for their home mortgage and medical expenses. If employees typically have taken these deductions in the past, it’s a good idea to review how much they have withheld.
3. Employees can use the Tax Withholding Estimator to get the most complete understanding of what their taxes will be for the year. It’s a quick, 5-step process for employees to see if they’re withholding the right amount of money from their paychecks. To fill out the form, employees will need their recent paystubs, info on other income they may have, and last year’s tax return.
4. It’s a good idea to review withholdings every year, and when an employee’s job or salary changes or when someone has a major life change that impacts their tax situation, like having a child, getting married, buying a house, and the like.
5. Employers can ask (but not require) each employee to fill out a new form, but it’s not necessary. The withholding tables that employers use to calculate withholdings will be updated to reflect new 2020 laws. New employees who get their first paycheck in 2020 and anyone who chooses to update their withholding information will need to use the new version of the W-4 form.
Completing the 2020 W-4 form
Here’s a quick guide to help your employees fill out the new W-4 form.
There are five steps/sections to the new form.
1. Personal information
2. Multiple jobs or spouse works
3. Claim dependents
4. Other adjustments
Everyone has to complete steps 1 and 5, but employees only have to complete steps 2, 3 and 4 if they apply to them. Steps 2, 3 and 4 will help employees ensure the withholdings on their paycheck match what they’ll owe. And remember, the Tax Withholding Estimator can help.
That’s it. For more information, check out the IRS website for the employee’s withholding certificate.