2020 has already brought  many changes to the HR landscape, one of them being an updated IRS Form W-4.  All newly hired employee must complete a Form W-4, which notifies the employer of how many withholding allowances to use when deducting federal income taxes from employees’ paychecks. A C2 client recently called and was confused about the new Form W-4. The goal of the new form is to better incorporate the changes ushered in by Tax Cuts and Jobs Act (TCJA), which President Trump signed into law on Dec. 22., 2017.  Unfortunately, many employees have found the new form confusing, as it involves quite a bit more personal information, forecasting of expenses, chart referencing, and mathematical calculations as compared to the old Form W-4.  Plus, there is no longer any place to enter the number of claimed “exemptions,” which was always the most important part of the old Form W-4.

The new re-structured Form W-4 will impact employers’ payroll professionals since it may require changes in the payroll process, re-training of payroll staff, and additional verbal or written explanations to candidates and employees who will be completing the new Form W-4 for the first time.  (Note: current employees who completed the old form are not required to complete the new Form W-4)

The new FormW-4 has been broken down into 5 steps.  Below are pictures of each of the steps and a bit of explanation about what each step requires.

 

1. Enter Personal Information

For the most part, this section is unchanged. If you are single with only one job or married and your partner doesn’t work, you can complete the basic demographic fields (i.e., name, address, etc.) and then move forward to step 5, where you sign the form.

New W-4

 

2. Multiple Household Jobs

For those employees married filing jointly and whose partner works or for those employees who hold multiple jobs – Save yourself a headache and use the estimator. Note, individuals with multiple jobs should complete their W-4 form for each employer with the information from their highest-paying job.

New W-4 -II

If you choose option 2(b), you will need to complete the Multiple Jobs worksheet. According to the IRS, this worksheet is less accurate than the tax estimator, but it provides the maximum amount of privacy.

Checking box 2(c) tells your employer that you have multiple jobs. If you don’t want to disclose that fact, don’t check the box, and use of other options in that section to help calculate the appropriate withholding.

3. Claim Dependents

This step determines your eligibility for the child tax credit.

The number of qualifying children under age 17 multiplied by $2,000 will go into the first box. The number of other dependents multiplied by $500 will go in the second box. The sum of those two numbers will go on line 3.

New W-4-III

 

4. Other Adjustments

In step 4, employees can account for other outside income or identify any extra withholding amounts they would like deducted from their pay, using the following criteria:

  1. Additional income that might not be subject to withholding, like dividends or retirement income.
  2. Itemized deductions like mortgage interest and charitable contributions that will exceed your standard
    deduction.
  3. Extra withholding. Any extra withholding that you would like to withhold each pay period.

New W-4-IV

 

5.  Sign the form

if you don’t sign the form, it is invalid. That means your employer will disregard your new W-4 selections and withholding, and instead calculate your withholding as “Single.”

New W-4-V

The new Form W-4 has already provided consternation among both employees and employers.  It will likely take some time for individuals to get used to the new form and it will cost employers additional effort to make sure employees fill out the new Form W-4 correctly.   Fortunately, the IRS anticipated many of the questions about the form and has provided a good “Q & A” section on its website that provides answers to many common questions.

 

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.