Sep 01, 2019
By Ben Seyfer, Senior Accountant at Terry Lockridge & Dunn
The W4 form is completed by every employee when they begin a new job to determine Federal income tax withholdings for payroll. Oftentimes, that is the last time it is thought about. The IRS recently published a draft of the new W4 Form for 2020. It is different from the previous versions. The new W4 from replaces complex worksheets with a more user-friendly building block approach. This is because the IRS is trying to help employees do better when estimating the amount of payroll tax withholdings necessary to cover their income tax liability.
Your single employees, with no dependents, will not see much difference with the new form. However, those who are married and file joint tax returns, or single people who work more than one job, will have a few more things to consider. One is whether they are the one with the “Higher Paying Job” or the “Lower Paying Job”. The importance of this would be the individual with the “Higher Paying Job” would simply need to complete more of the steps (Steps 3 – 4(b)) on the worksheet.
The IRS recommends using the online estimator to assist with the completion of the W4 form if you: expect to work only part of the year; have dividend or capital gain income or are subject to the net investment income tax; have self-employment income; or want a more accurate estimate. This can be found at: www.irs.gov/W4App which takes you to the Tax Withholding Estimator.
The current W4 form has the employee select how they will be filing their income taxes, plus a spot for extra exemptions and the ability to have additional withholding amounts deducted through payroll. The 2020 W4 form still has the employee select how they will be filing their income taxes. However, there are new sections for how to claim dependents, unearned income, deductions and tax credits, as well as extra withholding for those with spouses whose pay is not similar to their own.
Payroll software providers have been given copies of the draft 2020 W4 so they can begin to modify the payroll software programs to accommodate these changes. You can review the draft 2020 W4 by going to this website: www.irs.gov/pub/irs-dft/fw4--dft.pdf.
If you still do your payroll inhouse, now may be the time to consider outsourcing it to Terry Lockridge & Dunn. It is easy to get started! Contact Ben Seyfer at firstname.lastname@example.org, or any of the accountants at Terry Lockridge & Dunn and they can get you a quote, as well as a list of the payroll information needed by us to get your payroll set up. We take care of all quarterly payroll and end of year reports as well. They can be reached at 319-364-2945 in Cedar Rapids, or 319-339-4884 in Iowa City.