The Internal Revenue Service has introduced a new W-4 to use for income tax withholding. The new form has a new name and a new look, both excluding “allowances.” Now known as the Employee’s Withholding Certificate, this document replaces the former Employee’s Withholding Allowance Certificate.
Prior to January 1, 2020, there was an instruction form to determine how many allowances you would list based on various factors. The new form uses a four-step process to determine how much tax withholding is needed for an employee.
- Input personal information;
- List multiple jobs or a working spouse;
- Enter the number of dependents that qualify for a federal tax credit;
- Provide other income, deductions, or requested withholding.
The purpose of the change is to determine more accurately how much each individual will need to pay to prevent taxes owed come April or an overpayment throughout the year.
The IRS has even come up with an App to further calculate how much tax each employee should be paying. The App is available to the public and takes you through a 6 step question and answer format to help estimate your tax liability.
While this new form is meant to curb the confusion of determining allowances in the prior form, it does require more information from the employee. An employee must have knowledge of other sources of income, who qualifies for a federal credit, and prior tax returns to complete the form, so employers should expect onboarding to taking a bit longer.
While all employees hired on or after January 1, 2020, should complete the new form, employees hired prior to that date do not need to do so. You can ask employees to complete the new form, but they do not have to by law, complete a new W-4. In that case, you would just continue to withhold based on the W-4 on file. If a new employee fails to complete the form altogether, then withholding will be assumed to be as a single filer with no adjustments.
Employers should maintain all W-4 records for a minimum of four years and make withholding certificates available to outside payroll companies as they change.