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Can You Spot the Differences on the Revamped 2020 Form W-4?

Withholding allowances are absent on the new version of Form W-4.

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As an employer, you (hopefully) know that every time you hire a new employee, paperwork is involved. One of the most important forms your employees must complete is Form W-4. And in 2020, employers and employees alike were introduced to a new W-4 form

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So, have you been able to spot the differences between the old W-4 form and the 2020 version? No? Don’t worry, we spotted them for you. 

The 2020 Form W-4 Employee’s Withholding Certificate is an updated version of the previous Form W-4 Employee’s Withholding Allowance Certificate. The updated form’s goal is to simplify the process of filling out Form W-4 and improve tax withholding accuracy. 

Related: 75 Items You May Be Able to Deduct from Your Taxes

In case you didn’t know all about Form W-4 already, here’s a brief refresher. When employees start a new job, they must fill out Form W-4. Then, employers use Form W-4 to determine how much federal income tax to withhold from an employee’s gross wages. 

The above process hasn’t changed, but certain aspects of Form W-4 have. Check out everything you need to know about the updated 2020 W-4 form below. 

The form had a makeover

Maybe you noticed. Maybe you didn’t. But, the 2020 W-4 form had a little makeover. Why, you ask? Here are a few reasons why the IRS decided to switch things up on us employers:

  • To match changes to the Tax Cuts and Jobs Act

  • To make the form easier to understand and use

  • To help boost tax withholding accuracy

On older versions of Form W-4, employees would enter their personal information, claim allowances or exemptions, request additional withholding and sign the form. Now, the revamped form is broken up into five steps, including:

  1. Entering personal information

  2. Adding information about multiple jobs and a working spouse

  3. Claiming dependents

  4. Adding other adjustments (optional)

  5. Signing

Along with the federal Form W-4 getting a new look and layout, states with state income taxes might be shaking things up for employers, too. 

Some states have their own state W-4 form. Other states use the federal W-4 form. Because of the changes with the federal form, states had to choose whether they would use the federal W-4 form and make necessary adjustments to their state tax system or create their own state W-4 form. 

Related: When Starting a Business, Beware All the Taxes and Regulations

To stay compliant and ensure all of your ducks are in a row when it comes to the W-4 form updates, check with your state to see how they adapted to the changes. 

Withholding allowances are absent 

If you’re looking at the 2020 version of Form W-4, you might notice something missing. Did you find it? Ah yes, the withholding allowances are gone! One major 2020 Form W-4 change is the disappearance of the withholding allowances. 

For those of you who aren’t familiar with withholding allowances, allow me to quickly break them down for you. Before the W-4 form revision, employees could claim withholding allowances on Form W-4. The more allowances an employee claimed, the less employers would withhold in federal income tax. 

Before, employees would claim a certain number of withholding allowances to determine federal income tax withholding. Now, instead of claiming allowances, employees can claim dependents or other deductions. 

You may have different versions of the form

Now that there is a new version of Form W-4, you likely have some older versions of the form floating around your business.

So you’re probably wondering, Do I have to scrap all of my employees’ old W-4 forms and start from scratch?! 

…Thankfully, no.

Yes, it’s true that not all employees have to fill out the 2020 W-4 form. Employees whose first paycheck is in 2020 must use the new version of Form W-4. Current employees whose first paycheck was before 2020 that don’t need to make any changes on the form are not required to fill out a new W-4 form. Employees who do want to update their withholdings or W-4 form must use the 2020 version. 

Related: These Are the Most Common Tax Filing Mistakes for Entrepreneurs -- and How You Can Avoid Them

More likely than not (unless you don’t plan on doing any more hiring in the future), you’ll probably have a couple of different versions of Form W-4 in your records. 

If you want to only have the current version of the form on file for each employee, you can ask employees hired before 2020 to fill out a new form. Keep in mind that employees first paid before 2020 aren’t required to submit a new form. And, you can’t force employees to fill out a new form or insinuate that a new form is mandatory. 

New tax withholding tables exist

In addition to the IRS switching things up with a new Form W-4, employers are also being gifted new tax withholding tables in 2020. Because the new W-4 form put the kibosh on withholding allowances, new tax withholding tables were born. 

The new withholding tables go hand in hand with the new W-4 form. Like the new W-4 form, the new income tax withholding tables have also said goodbye to withholding allowances.

The updated income tax withholding tables have two tables that go along with the new W-4 form:

  1. Percentage Method Tables for Automated Payroll Systems

  2. Wage Bracket Method Tables for Manual Payroll Systems

If you have employees who filled out older versions of Form W-4, the IRS did not forget about you. There are withholding tables that support earlier versions of Form W-4 that include rates based on withholding allowances. 

If you’re a little lost when it comes to the new tax withholding tables, you’re not alone. There are plenty of other employers in your shoes. To help clear up some confusion, the IRS provides a withholding worksheet, Publication 15-T

Related: Cryptocurrency and Taxes: What You Need to Know

With so many W-4 changes to keep track of, it can be difficult to keep up. But no worries, employers. Like with anything in business, it takes time to learn new things. 

If you’re still lost, don’t panic just yet. To recap the main changes we covered and clear up possible confusion, here is everything that you need to know about the new Form W-4:

  • There was a redesign

  • Withholding allowances are gone

  • Instead of allowances, employees can claim dependents or other deductions

  • Employees whose first paycheck is in 2020 need to use the new form

  • There are five steps on the revamped form

  • Employers can’t force employees to submit a new W-4 form

  • There are new income tax withholding tables

  • States that previously used the federal form may either use the new Form W-4 or create a state W-4 form

If the above breakdown wasn’t enough to calm your nerves about the new Form W-4, consider taking things into your own hands by doing a little homework. Take some time to research and absorb the new W-4 changes. Your business (and employees) will thank you for it later. 

Related: W-9s and Four Other Business Tax Forms Entrepreneurs Need to Know About

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