A draft of the 2020 federal income withholding form was released May 30 by the Internal Revenue Service.
Employees filling out the new draft Form W-4, Employee’s Withholding Allowance Certificate, no longer would be able to claim any withholding allowances. A W-4 is filed with employers to calculate income tax withholding for each pay period.
“The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” IRS Commissioner Chuck Rettig said May 31 in a statement. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”
The draft outlines five steps for reporting tax-filing status, whether household members hold multiple jobs, dollar amounts for other income that would not have withholding, and anticipated tax credits and deductions. The draft also allows for additional withholding amounts to be applied each pay period. General instructions and a worksheet accompanied the draft form. The worksheet is not to be filed with the employer.
The form includes a line where qualified employees may claim a full exemption from federal income tax withholding.
Tax Code Overhaul Requirements
Revisions to the form and federal withholding methods were needed because the tax code overhaul (Pub. L. 115-97), which took effect Jan. 1, 2018, suspended the use of personal allowances in figuring individual tax liability and doubled the standard deduction. Withholding allowance amounts were tied directly to the number of personal exemptions, and IRS had to change the form and withholding methods to better conform with calculating tax liabilities under the new law.
This is the IRS’s second attempt at revising Form W-4. The agency released a draft in June 2018 that for the first time asked employees to provide dollar amounts expected to be earned from second jobs and by other household members, along with nonearned income and potential tax credit amounts.
Comments on the 2018 draft form raised a number of issues, including the ability of employers to figure into their payroll systems the new dollar-amount-based approach, and to change withholding methods accordingly. There also were concerns about employee privacy and a desire for more clarity in instructions so the form could be completed accurately. By September 2018, the IRS and the Treasury Department decided to delay publishing a revised W-4 until 2020.
The IRS is seeking comments on the 2020 draft Form W-4 by July 1. Comments may be sent to WI.W4.Comments@IRS.gov.
Only newly hired employees and those wishing to change withholding amounts in 2020 would need to file a new form, IRS officials said. For 2019, taxpayers should continue using the current W-4.
Draft employer instructions for the form are expected to be released soon, along with more information about Form W-4, the agency said. A set of frequently asked questions and answers was released May 31.
3 Withholding Methods
Employers can expect a second and third method for withholding, along with the one used for withholding allowances, said Pete Isberg, president of the National Payroll Reporting Consortium, which represents a group of payroll service providers. The existing withholding methods using allowances would continue, along with the two new methods developed that do not consider withholding allowances because of the tax law overhaul, he said.
Isberg, who is a member of a stakeholder group advising the IRS on changes to the W-4, said concerns about privacy from the previous draft are largely addressed in Step 2 of the new draft form. Unlike the previous draft, which asked for specific income amounts from multiple jobs and from spouses, employees would check a box in Step 2 to indicate that they want higher income withholding amounts, he said.
“With this option, more tax than necessary may be withheld from your wages, but you generally won’t have too little tax withheld,” the Step 2 instructions said.
Because the draft form suggests employees use the IRS online withholding calculator or the worksheet to determine if they want greater amounts withheld from pay, there is no need to share with employers specifics about multiple jobs or spousal income, said Isberg, vice president for government affairs at ADP LLC.
Employees who check the box in Step 2 would trigger higher withholding amounts, Isberg said. To accommodate this, employers, software developers, and payroll processors would have to develop another set of calculations that do not consider withholding allowances, as well as a third set of calculations that include a greater amount of withholding for those who check Step 2 on the draft form.
Employer instructions are expected to be lengthy, Isberg said, noting that about 36 steps were included in an early set presented to stakeholders.
The traditional set of wage-bracket withholding tables, which have withholding allowances across the top to cross-reference wage amounts, are to change, but there likely would be wage-bracket tables for 2020, Isberg said.
The 2020 wage-bracket method table would be simplified because it no longer would include the allowances part, Isberg said. The table would reference marital status, normal withholding, and the optional higher withholding amounts for those checking the box in Step 2 of the draft form, he said.
The IRS expects to issue a second draft of the 2020 Form W-4 in mid- to late July, followed by a period for additional feedback. A final version of the form is expected to be released in November, the agency said.
Comments on the second release would be accepted, but major changes are not likely because the second draft is to be close to its final form and should be used by employers to develop payroll-system programming, the IRS said. Draft forms are not final forms and are not to be filed by taxpayers.
(Updated throughout; section added on three withholding methods.)
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