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Treasury, IRS release proposed 2020 Form W-4 design, ask for comments

June 4, 2019

In brief

The US Department of the Treasury (Treasury) and the IRS on May 31 released a draft new design for Form W-4, Employee's Withholding Allowance Certificate, for calendar year 2020. The new draft reflects input from taxpayers and the payroll community in response to the draft Form W-4 released in June 2018. Treasury and the IRS request comments on this draft; the comment period is open for 30 days.

The IRS is expected to issue and request comments on draft Form W-4 instructions for employers in the coming weeks. The IRS plans to release a near-final draft of the 2020 Form W-4 in July 2019, to give employers and the payroll community time to implement changes before the draft is finalized in November 2019. The IRS also issued Frequently Asked Questions (FAQs) for both employees and employers addressing the 2020 Form W-4's new design.

In detail

Background

Form W-4 is the certificate completed by employees that enables employers to determine the correct amount of federal income tax to withhold from employee wages. While Form W-4 has had a relatively consistent format for years, the 2017 tax reform legislation (the Act) decreased the individual income tax brackets, removed personal exemptions, and created uncertainty for employers on the application of new withholding tables. The IRS in January 2018 released Notices 1036 and 2018-14 to

address these significant changes.

The IRS on June 5, 2018 released a draft of the 2019 Form W-4 which differed significantly from the 2018 version and was more complex, as it was designed to align wage withholding for the 2019 tax year with the changes resulting from the Act. The draft 2019 Form W-4 was issued with a request for public comment, and the IRS and Treasury received substantial feedback in working with taxpayers and the payroll community.

Proposed new form

The 2020 draft Form W-4 is simpler and more straightforward than the prior draft in that it provides options tailored for individuals with multiple jobs (or more than one job in the household) and for individuals with only one job in the household. Notably, under the simplified Form W-4, only two steps are required for all employees: Step 1, where an employee enters his/her personal information, and Step 5, where the employee signs the form. Steps 2-4 of the revised form, if applicable, further seek to tailor withholding to more accurately match tax liability.



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The new draft also provides employees with more privacy than the prior draft, which requested information about other forms of income, other jobs, itemized deductions, and credits that employees may not have wanted to share with employers. As with the prior draft, there are no questions regarding withholding allowances or other items tied to the personal exemption (which has been suspended through 2025).

The FAQs give background on the reasons for the form's redesign and for requesting certain information, such as information regarding multiple jobs, and explain how employees may use the form. Specifically, the FAQs clarify why certain information is requested, walk through when employees should increase or decrease withholding, and explain how to complete Form W-4 if a refund is desired or if the individual has a single versus multiple jobs.

Employees are directed to the IRS withholding calculator to provide maximum accuracy on their withholding in completing Form W-4. The withholding calculator is expected to be revised in 2020 to make it more compatible with the redesigned Form W-4. Employees also are encouraged to perform a paycheck checkup to determine whether the proper amounts will be withheld and may submit a new Form W-4 once the new form is released for 2020.

The IRS is aware that employers need to update systems in order to implement changes as a result of the new Form W-4. The FAQs address whether two systems will be needed

for 2019 and prior Forms W-4 and 2020 Form W-4, clarifying that the same set of withholding tables will be used for both the old version of the form and the 2020 version, and noting that employers may either use two systems for the different versions, or simply use a single system based on the redesigned version (entering zero in data fields that did not exist on the old version of the form).

Employers with any concerns pertaining to the current draft Form W4 are encouraged to submit comments within the next 30 days. Employers and payroll processors then can begin updating systems and planning employee communications based on the near-final draft expected to be issued in July 2019, prior to the final draft expected to be issued in November 2019.

Note that the IRS clarified that employees who have submitted a Form W-4 to their employer prior to 2020 will not be required to submit a new Form W-4 once the final redesigned form is released. In addition, employers will be able to withhold based on the most recently submitted Form W-4 on file. Employers may request that employees hired prior to 2020 submit new Forms W-4 once the redesigned version is final, but should note in the request that employees are not required to submit a new Form W-4, and that withholding will continue based on the Form W-4 on file if a new form is not submitted. Employers may not treat employees as failing to furnish Forms W-4 of they do not furnish a new Form W-4.

The FAQs confirm that nonresident aliens still will require an adjustment in withholding, which will be provided in instructions in the 2020 Publication 15-T, Federal Income Tax Withholding Methods.

Observation: While employees may continue to use older Forms W-4, they should consider reviewing their withholding to determine the amount of income tax to be withheld as accurately as possible, particularly if their withholding for 2018 resulted in too much or too little withheld or if there have been any major life events, such as marriage or the birth of a child.

The takeaway

The delayed implementation of a significantly modified Form W-4 has provided employers with additional time to consider the potential implementation timeline, employee communication, and systems modifications required in advance of the 2020 tax year. The release of the draft 2020 Form W-4, which is simpler and offers more privacy than the 2018 draft, reflects that Treasury and the IRS responded to feedback from employers and the payroll community.

Employers should take advantage of the 30-day comment period to provide any additional feedback on this draft of the 2020 Form W-4. Employers also should be monitoring the release of the near-final draft Form W-4 expected to be released in July 2019 in order to develop system changes and employee communications.

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