IRS Issues Draft Form W-4 Overhaul for 2020

The new form should provide more accurate withholding, greater privacy for employees

June 6, 2019
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updated August 6, 2019

Update: IRS Revises Withholding Estimater Tool

The IRS launched a new Tax Withholding Estimator on Aug. 6, replacing the former Withholding Calculator on the IRS website.

“The new estimator takes a new approach and makes it easier for taxpayers to review their withholding,” said IRS Commissioner Chuck Rettig.

The Tax Withholding Estimator offers taxpayers a more user-friendly, step-by-step tool for tailoring the amount of income tax they have withheld from wages and pension payments, the IRS said. More people with certain tax situations can use this tool than before, such as retirees and self-employed individuals. The newly designed, mobile-friendly tool uses plain language and has several new functions.

To avoid tax filing surprises, the IRS urges taxpayers to check their withholding and adjust it, if needed, for the last few months of 2019.  It's especially important to use the estimator now if an employee:

  • Faced an unexpected tax bill or a penalty when filing this year.
  • Made withholding adjustments in 2018.
  • Has or will experience a change in marital status, dependents, income or jobs this year.

On May 31, the IRS released a draft 2020 Form W-4 with major revisions designed to make accurate income-tax withholding easier for employees, starting next year. The IRS also posted FAQs about the new form and accepted comments on the changes through July 1.

On June 7, the IRS released draft instructions for 2020 income tax withholding, with comments accepted through July 8. The instructions in Publication 15-T, Federal Income Tax Withholding Methods, include an employer withholding worksheet, percentage-method withholding tables and wage-bracket method withholding tables. The worksheet is intended to let employers calculate the 2020 withholding amount using an employee's previously completed Form W-4 or the newly designed form.

The draft 2020 Form W-4 is not for immediate use, the IRS emphasized, and employers should continue to use the current Form W-4 for 2019.

"The primary goals of the new design are to provide simplicity, accuracy and privacy for employees, while minimizing burden for employers and payroll processors," IRS Commissioner Charles Rettig said.

The new form reflects changes made by the Tax Cuts and Jobs Act, which took effect last year. For instance, the revised form eliminates the use of withholding allowances, which were tied to the personal exemption amount—$4,050 for 2017, now suspended. It also replaces complicated worksheets with more straightforward questions.

Addressing a key employer concern, the IRS said that employees who have submitted Form W-4 in any year before 2020 will not need to submit a new form because of the redesign. Employers can compute withholding based on information from employees' most recently submitted Form W-4, if employees choose not to adjust their withholding using the revised form.

Easier for Employees, More Complex for Employers

"Generally, the new Form W-4 is an improvement for employees," said Pete Isberg, vice president of government relations at payroll and HR services firm ADP. It shifts the burden of several calculations from employees to the employer, he noted. "For example, previously employees would complete a difficult worksheet to convert expected deductions to a number of withholding allowances. With the new form, they'll just enter their full-year expected deductions over the standard deduction amount."

Because existing employees won't have to complete a new Form W-4, "employers must still observe their current Form W-4 withholding allowances," Isberg said. "However, for employees hired after 2019—and anyone that wants to adjust their withholding after 2019—the 2020 version will be the only valid Form W-4."

Not requiring employees to submit the new W-4 will ease HR's burden, but it also means that "payroll systems will need to accommodate the existing withholding allowance calculation, as well as the new method," which could make reprogramming payroll systems more arduous, said Mike Trabold, director of compliance at Paychex, an HR technology services and payroll provider.

In addition to supporting two distinct withholding systems, employers will need to accommodate three sets of withholding calculations, Isberg said:

  • The old system based on withholding allowances.
  • The 2020 system with a checkbox for optional higher withholding.
  • The 2020 system that allows employees to input new data, listed below in the W-4 forms comparison chart.

2019 Form W-4 2020 Form W-4 (draft)
Number of withholding allowances.Checkbox for multiple jobs or optional higher withholding.
Per-payroll additional amount to withhold.Full-year child and dependent tax credits.
 Full-year other (non-wage) income.
 Full-year deductions (over the standard deduction amount).
 Per-payroll additional amount to withhold.

"One interesting question is how long employers might need to support the old and new systems simultaneously," Isberg said. "It will probably be many years before the last withholding allowances [used by current employees] drop off."

Addressing Privacy Concerns

In June 2018, the IRS issued an earlier revision of Form W-4 and instructions for 2019. But in September 2018, the IRS said it would delay major revisions until 2020 to respond to criticism about the form's release date and complexity.

"We anticipate this version will be better received than the prior draft," Trabold said. The earlier version "asked for much more specific information on other sources of income, such as second jobs, spousal income, non-earned income, etc., which was intended to increase withholding accuracy but which many taxpayers may have felt to be invasive and wouldn't necessarily want to share with their employer."

With the new version of the form, taxpayers can check a box "to indicate their desire to have more tax withheld, without having to share details with their employer," Trabold said. Although this may lead to too much withholding for some taxpayers, "it will help address concerns of those who prefer to get a refund check every year or who may have had to unexpectedly pay tax when filing this year," he explained.

While there will be a worksheet to help taxpayers with the new form, "it will not be provided to the employer, further assuring privacy," Trabold noted.

[SHRM members-only HR Q&A: Can an employer accept a W-4 form from an employee claiming 99 dependents?]

What's Next

The IRS said it plans to release a "close to final" version of the form later this summer, after which employers and payroll administrators can start making programming changes to their systems. A final version, expected in November, will contain only minor adjustments.


Related SHRM Articles:

At Tax Time, Urge Review of Paycheck Withholding and Retirement Savings, SHRM Online, January 2019

2019 Payroll Taxes Will Hit Higher Incomes, SHRM Online, October 2018

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