Most of the changes
to the federal income
tax system under the Tax Cuts and Jobs Act of 2017 went into effect in 2018; however a few key changes are effective for the 2020 tax year. The biggest change is to the W-4 employee withholding forms, which went into effect this year, and is already causing confusion for both employees and employers.
Form W-4 changes
The Form W-4 is being changed for the first time since 1987, so all businesses will need to start using the new form, and more importantly, be able to explain it. The W-4 is form used to determine what amount an employer should withhold from an employee’s paycheck
for income tax purposes. The IRS says the purpose
of the changed W-4 is to increase transparency, simplicity, and accuracy. For example, the changes in federal tax law no longer allow personal exemptions or dependency exemptions, and the old W-4 was tied to these exemptions. The following are the most important
things to be aware of in using and explaining the new W-4:
1. Not every employee must fill out the new W-4:
The only employees that are required to fill out
the new W-4 are those who will receive
their first paycheck in 2020, or those making
changes to their withholding. The employers
are not required to have current employees fill
out a new W-4. IRS Publication 15-T has a table
which can be used to calculate withholding,
whether you are using the new or old W-4.
2. No more withholding allowances: With the
elimination of withholding allowances, the
process of determining what amount should be
withheld from one’s paycheck for taxes, be-
comes a bit more complicated. Whereas on the
previous W-4 form, an employee would choose
filing status, allowances, and an additional
amount to withhold, the new form requires an
employee to fill out a worksheet if they work
other jobs, or if their spouse works, then
multiply dependents by a certain dollar amount,
and then choose the option to have an
additional amount withheld.
3. Some tips to help employees fill out the new
form: Employees filling out the new W-4 will
most likely have some questions. Some
anticipated questions and answers are provided
below.
a
. Does an employee have to fill out every
step of the form? No, only Step 1-personal
information, and Step 5: signature, are
required to be filled out by an employee.
If Steps 3—4 apply, they should be
completed so that an employee’s
withholding will more accurately match
their tax liability. Step 2 of the form
requires an employee to disclose a second
job; however, if an employee does not
want to reveal that they have a second job
to an employer, they can request that a
specific amount be withheld in another
part of the form to compensate for not
disclosing the second job earlier.
b
. Can most employees expect about the
same tax refund when they file for 2020?
Most likely, not. The changes in the form
are designed to help increase the accuracy
for taxes owed. If this plays out the way
the IRS expects, most employees’ with-
holding will be more accurate in relation
to the amount they owe in taxes, than in
previous years. This increased accuracy
may result in smaller tax refunds at the
end of the year.
4. No change to Georgia G-4 tax withholding form:
Although some states use the federal W-4 form
for state tax withholding as well, not all states
do. For example, Georgia has its own tax with-
holding form, the G-4, which has not changed.
Business Insights is hosted by the Law Firm of KPPB Law (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB Law, practicing in the area of corporate law and governance.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.