The Internal Revenue Service (IRS) has released a draft Form W-4 for use in tax year 2020, which includes significant changes designed to further implement the Tax Cuts and Jobs Act (TCJA) passed in December 2017.
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The redesigned Form W-4 no longer uses the concept of withholding allowances, which was previously tied to the amount of the personal exemption. The TCJA suspended personal and dependent exemptions through the end of tax year 2025.
“The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig in a recent statement. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
The IRS is accepting comments on this initial draft until July 1. The agency then plans to release a near-final draft of the 2020 Form W-4 in mid-to-late July to give employers and payroll processors the tools they need to update systems before the final version of the form is released in November. Meanwhile, for 2019, taxpayers should continue using the existing Form W-4.
Employees who have submitted a Form W-4 in any year before 2020 will not be required to submit a new form merely because of the redesign, the IRS noted. Employers can continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.
Potential Implications
In a frequently asked questions (FAQs) document, the IRS sought to address some of the potential implications for employers and employees alike.
Employers will not necessarily need separate software systems for the new and old forms, the IRS noted. Since the same withholding tables will apply, an employer could either apply them separately to systems for new and old forms, or use a single system by entering zero or leaving a blank where a data field captures information included in the new form but not the old.
“New employees who fail to submit a Form W-4 after 2019 will be treated as a single filer with no other adjustments,” the IRS added. “This means that a single filer’s standard deduction with no other entries will be taken into account in determining withholding.”
Beginning January 1, 2020, new hires must use the redesigned form, as must existing employees who wish to adjust their withholding. An employer may ask existing employees to submit a new Form W-4 using the new version, but must also explain that they are not required to do so and that, if they do not, withholding will continue based on the form they previously submitted if it is valid.