Form W-4 2020 – Big Changes are Coming!

The W-4 has been redesigned and is required to be used in 2020, less than six weeks from today.  The form has been changed to increase transparency and accuracy of withholding and to reduce complexity by replacing complicated worksheets with questions.  Allowances are no longer used; you cannot claim personal or dependent exemptions in 2020.  Current employees who have submitted a W-4 prior, do not need to submit this new form, but those who have any changes and all new employees are required to use the revised form W-4 in 2020.

The form is divided into 5 steps.  The only two steps required are step one and five where an employee enters their name and personal details along with their filing status and then signs the form.  They complete steps two through four if they apply to them.  The goal is to have their withholding amount most accurately match their tax liability.

As a general rule, and for the purpose of understanding how the new form works, the IRS suggests increasing the withholding amount when the employee and their spouse both have a job or the employee holds more than one job at a time and also when the employee has income from other sources that may not be subject to withholding.  Other income can be included on line 4(a) if the employee would like to have tax withheld to cover additional income that he/she may have.  The IRS offers a withholding estimator which can be found at www.irs.gov to assist.

If employees owe additional taxes when filing their tax return and they did not make these adjustments, they may also owe interest and penalties.  They may also pay estimated taxes vs. extra withholding to cover income from other sources.

Employees should decrease their withholding when eligible for income tax credits such as the child tax credit, credit for other dependents or if they are eligible for other than standard deductions.  Regarding the child tax credit on the W-4, employees can apply these tax credits later at year-end if desired.

As an employer, if you feel there is an error on the W-4 Form, you should not question your employee’s input.  You can offer a guide to provide some aspects of potential issues, such as high deductions being listed and utilized, but should not question the W-4 form your employee completes and provides.

Another common question that is commonly raised by staff accepting a form W-4 regards employees who choose to claim exempt on their W-4.  The staffing industry onboards thousands of new employees each year who accept multiple assignments with different firms and process a large amount of new hire paperwork.  Staff, however should not provide payroll and tax advice.  Recruiters would not be able to determine if “exempt” is allowed to be selected as they do not know if an employee has “no tax liability” or not.  Of course, no “proof” is needed to claim exempt, however, an employee must sign that they haven’t had a tax liability in the prior year and expect no liability in the current year as well.

Important to note: if an employee previously claimed exempt on their W-4, but does not complete the 2020 W-4 by February 15th, taxes (if modified by the agency in COATS) will be determined only on the filing or marital status on file.  To claim exempt going forward, employees have to now complete a W-4 each year to keep an exempt status.

As employers, we are not allowed to provide “tax advice” to applicants or employees completing new hire paperwork, which does make it difficult to assist those completing the new form W-4.  But, there are a few things you can do to help new hires.  You can point them to the instructions on how to use the form or you can have them use the “Tax Withholding Estimator” https://www.irs.gov/individuals/tax-withholding-estimator.

For the latest version/draft on the IRS website of the W-4 until it’s final release, see https://www.irs.gov/pub/irs-dft/fw4–dft.pdf.

To accommodate our COATS customers with this new federal form change, we will be adding three new codes specifically for the W-4 revision, due in 2020.  These codes will link to the new federal withholding tax tables.  We will also be leaving the previous codes and tables in place, allowing our clients to move forward with proper federal tax processing in 2020 without having to edit previous employee data.

For more information, feel free to contact COATS Staffing Software at 1-800-888-5894.

To learn more about COATS Software, visit our website at www.coatssql.com.

By Lynn Connor, COATS Staffing Software

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