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A final version, expected in November, will contain only minor adjustments. 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. The biggest change is the elimination of “allowances,” which were used to reduce the withholding on paychecks based on the number of “exemptions”(people/dependents in the household).

  • It shifts the burden of several calculations from employees to the employer, he noted.
  • Flash forward to 2020 and the Internal Revenue Service (IRS) has released a new W-4 and withholding calculator to help taxpayers remedy their withholding.
  • An employee’s elections on Form W-4 provide the employer with the factors needed to accurately calculate withholding.
  • The new form, released on December 5, is quite different than the form we have all become used to.

Changes potentially needed to electronic Form W-4 systems should also be considered. A number of people were surprised to see a smaller refund, no refund, or to discover they owed money to the IRS at tax time. After the law was passed, the IRS updated its withholding tables and urged taxpayers to update their W-4s as needed, but few did. Each December, HR should remind employees to submit a new Form W-4 if their filing status, other income, deductions, or credits have changed or will change for the next year. It is also a good practice to notify employees who filed an exemption from withholding that they must file a new Form W-4 in a timely manner for the upcoming year. The new Form W-4 calculates withholding by having you complete five steps.

Steps to Filling out the W-4 for Employees:

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. “Employers can ask employees hired before 2020 to use the new form, but [employees] are not required to do so,” said Jon Barber, senior vice president of tax policy and research at Ayco, a financial counseling and investment management firm.

Step 2 asks employees to provide information about all the income in their household if there are multiple jobs. This applies if the employee has more than one job or if both spouses work and file taxes jointly. Employees used to answer a series of questions to arrive at a number of “allowances.” The allowances were based on personal exemptions — essentially how much income was exempt from tax based on how many people were dependent on the employee. But the new tax law did away with personal exemptions, so the IRS had to change its approach.

What do Employers Need to Tell Employees About Form W-4?

Well, under-withholding if both spouses enter their full-year tax credit amount, and a large tax bill at year-end. Or if neither enters tax credits, a bigger tax refund — less of a problem, but keep in mind that each paycheck is unnecessarily reduced during the year. The form will require taxpayers to fill out whether household members hold multiple jobs, dollar amounts for other income not automatically subject to withholding, such as pay from freelance work, and anticipated tax credits and deductions.

Irs Overhauls Form W

Historically, the number of allowances was relatively easy to compute because it was tied to the number of personal exemptions a person could claim, plus any additional allowances needed to account for itemized deductions. Because Public Law , the Tax Cuts and Jobs Act (TCJA), set the personal exemption to zero for tax years beginning after December 31, 2017, and before January 1, 2026, there is no longer any nexus between exemptions and allowances. Moreover, Section 11041(f)(2) of the TCJA said the Treasury had to implement withholding-related changes by 2019. If you would like assistance in completing a new Form W-4, please call our office for a consultation regarding the new rules on federal income tax withholding.

IRS overhauls federal income withholding forms

Changes in tax law prompted the IRS to overhaul the Form W-4 and rename it the “Employee’s Withholding Certificate.” Though the form is slightly altered most years, the intent of the redesign is to simplify the withholding process. Instead, the form directly asks you how many children and dependents you have and you have to multiply that number by the amount of the federal tax credit. We’re proud to keep more than 29,000 organizations informed and compliant with federal and state laws and regulations. Since 1990, Paycor has maintained a core expertise in payroll and compliance.

The overhaul of the form is the biggest in decades and makes a once quick exercise a bit more involved. That is particularly important as the new tax law led to surprises for some folks last year, due in part to improper withholdings. In this optional section, an employee can indicate whether they want to withhold more or less from their paycheck by listing other income, deductions other than the standard deduction, or an extra amount to withhold per pay period. Only Steps 1 and 5 are required for all workers, but responding to Steps 2-4—if they apply to an employee’s particular situation—can ensure more accurate withholding with regards to an employee’s tax liability. Even if employees figure out that more allowances mean less tax is withheld, they will generally not know how much withholding results from any particular number of allowances until they see their paychecks.

IRS Overhauls Form W-4

Now that personal exemptions are off the table, so are the “allowances.” Your human resources or payroll department can direct you toward helpful information but cannot provide advice. So the new form is worth a look, regardless of how long you have been on the job. The IRS has introduced a new Form W-4 that must be used by all employers in 2020 to better accommodate recent changes to the tax law. Disclosure of tax information to employers would be invasive and burdensome for employers and employees. However, it’s not a bad idea to do a “payment checkup,” as suggested by the American Payroll Association.

Irs Overhauls Form W

Employees who do not switch employers aren’t required to fill out a new form but can if they choose. Finally, you can list the number of deductions you expect to claim if you think you’ll be itemizing. Taxpayers can also account for income you’re bringing in that doesn’t have taxes withheld, including retirement income, interest and dividends.

The IRS recently redesigned the Form W-4, retitled Employee’s Withholding Certificate, which tells employers how much tax to withhold from the employee’s paycheck. The redesign reflects changes to the tax code from the Tax Cuts and Jobs Act, which took effect in 2018. Their goal is that it “reduces the form’s complexity and increases transparency and accuracy of the withholding system.”

  • Others have surmised that the new W-4 will be crafted to look like a mini Form 1040, federal income tax return, to ensure that taxpayers’ withholding more accurately reflects their federal income tax liability.
  • Commenters said employees do not know what income, deductions and credits they will have, do not really understand these terms, and do not want the responsibility of having to estimate them before the end of the year.
  • This way, you can pinpoint your withholding based on income earned from all those jobs.
  • Employers will find a mix of relatively easy new computations, such as converting employees’ full-year additional income and deduction estimates to per-pay period amounts; and more complicated programming.
  • A new line (6) will ask employees to enter expected full-year deductions, such as mortgage interest and charitable contributions.

If you don’t withhold enough, you may have to pay a tax bill or face penalties. If you withhold too much, you’re basically letting the government have an interest-free loan. The Employee’s Withholding Certificate includes instructions for completing the form. Also new this year, this IRS Free File program has expanded with even more companies helping people electronically prepare their taxes. If too much is deducted, you might get a fat check at tax time, but you’re basically giving the government a no-interest loan throughout the year. Create an environment where employees feel safe to speak up and be heard.

The space below step 4(c) is used for employees to identify that they are nonresident aliens or are exempt from paying taxes. “If you use an electronic form, developers are instructed to provide a place to enter the information, such as a check box,” Jacobsohn said. The new form, which was released as a draft Friday, will be finalized in about a month and becomes effective Jan. 1, 2020, a Treasury Department official said in a call with reporters. That means the forms won’t be available to help calculate withholding for the 2019 tax year.

  • However, if you’ve married, divorced, had children, changed jobs, or added a job, it’s important to fill out a new form to ensure your withholding is correct.
  • As people began filing their taxes in 2018, much talk was made about the variance in refunds (or tax bills owed).
  • The new form is designed to make withholdings more accurate resulting from the Tax Cuts and Jobs Act.
  • A close to final version is planned for late July after which employers and payroll administrators can start making programming changes.
  • The changes to this form will affect nearly every employee and employer, potentially more than once a year.
  • Employees can elect to withhold federal income taxes for 2022 and 2023 based on marital status alone.

The old W-4, which hadn’t been updated to reflect all the changes to the law, is responsible for some of the surprises. (4) For employees with multiple jobs, total annual taxable wages for all lower paying jobs in the employee’s household. “Most folks aren’t affected by this, but it’s the job changers and people who want to adjust their withholding,” said Pete Isberg, vice president at ADP, a payroll company. If an employee does not want to disclose that they have a second job or share their spouse’s income information, there are workarounds. The easiest is to use the IRS Tax Withholding Estimator at /W4app to determine how much your household needs to withhold and enter that total lower on the form. Employees claiming exemption from income tax are required to complete a new Form W-4 every calendar year, and the February 15th deadline is fast approaching.

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