January 14, 2020
On December 5th, the IRS overhauled the process for determining how much federal income tax employers must withhold from an employees’ paycheck. Effective January 1st, 2020 all new employees and any employee changing their federal tax withholding must complete the new 2020 W4 form. The IRS has replaced the system of declaring allowances with a five step process to more accurately determine federal tax withholding. A brief review:
Step 1- Requires the employee to provide personal information and their anticipated filing status to determine the standard deduction and tax rate to be used.
Step 2- Employees who are working more than one job or are married filing jointly with both the employee and spouse working should complete this section.
Step 3- Provides instructions for determining the amount of any child tax credit and credits for other dependents that the employee may be able to claim on their tax return.
Step 4- Is used to enter other estimated income for the year (interest income, dividends, retirement income), deductions other than the standard deduction, and any additional tax the employee would like withheld.
Step 5- Employee signature and date.
Employees hired prior to 2020 do not have to fill out the new form however if they would like to make a change to federal withholding amounts they must use the 2020 form.
An employee may claim an exemption if (a) the employee had no federal tax liability in 2019 and (2) the employee expects to have no federal income tax liability in 2020.
The 2020 W4 form contains multiple jobs worksheets to help employees complete section 2. An employee may also use the IRS withholding estimator (insert link).
In addition to the IRS resources listed above, BizChecks Payroll has provided a link to the IRS FAQs on our website under the help tab.
As federal withholding is longer tied to personal exemptions, newly hired employees must now complete Massachusetts form M4 to accurately calculate state withholding taxes.
Employers are required to keep a copy of the W4 on file at the location of the business. Please note that due to Mass Data Security Laws BizChecks does not keep a copy on file.
It is critical that employees review their first paystub after submitting the new form to ensure that the correct amount of federal tax is being withheld from their wages. BizChecks Payroll is unable to provide any tax guidance to individual employees. Employees should consult with their tax advisor with any questions or concerns.