IRS Releases Second Drafts of Redesigned 2020 Form W-4 and Withholding Instructions
Author: Rena Pirsos, XpertHR Legal Editor
August 20, 2019
The Internal Revenue Service (IRS) has released second drafts of the completely redesigned and renamed 2020 Form W-4 and new Publication 15-T, Federal Income Tax Withholding Methods for use in 2020. The changes are being made to comply with the 2017 federal tax reform law, which suspended personal exemptions through 2025. Although the final form and publication will not be released until the fall, the IRS has instructed employers to begin reprogramming their payroll software based on the second drafts.
Draft Form W-4
On prior versions of Form W-4, the personal exemption amount has always served as the annual withholding allowance amount. With the elimination of withholding allowances, the IRS has renamed the form, which was previously titled Employee's Withholding Allowance Certificate, to Employee's Withholding Certificate. The new form is built on five steps.
Beginning in 2020, employees will no longer be able to set their withholding by adjusting their withholding allowances. Instead, employees hired after January 1, 2020, and employees who must update their Form W-4 to account for changes to marital status or tax dependents, must at a minimum complete step 1 by providing their personal information and sign the form in step 5. Employees hired before January 1, 2020, and employees who do not change their existing Form W-4, are not required to file a 2020 Form W-4 with their employer.
In Part 1 of the new form, the IRS added Head of Household to the filing status choices on line 1c.
Steps 2, 3 and 4 are optional for employees to complete:
- Employees who choose to increase their withholding can check the box in step 2 to account for two jobs, or complete step 4(a) to account for other income (such as capital gains) or step 4(c), which instructs employers to withhold an additional flat amount;
- Employees who choose to decrease their withholding can account for dependents in step 3, or other deductions (such as mortgage interest) in step 4(b); and
- Employees who choose to claim an exemption from withholding must write in the word "Exempt" under Line 4c.
Similar to the current Form W-4, the draft includes worksheets for multiple jobs and deductions that employees can complete to ensure their withholding more accurately reflects their income and taxes.
Because current employees are not required to file the 2020 Form W-4 with their employers, the IRS has been compelled to reconfigure the percentage method and wage-bracket method of income tax withholding to account for withholding under different versions of Form W-4.
The computation methods included in Publication 15-T allow an employer to figure withholding regardless of whether an employee provides the 2020 Form W-4. An employer must choose from five withholding methods and complete the appropriate worksheet for each employee's withholding:
- Percentage Method Tables for Automated Payroll Systems - Worksheet 1. An employer may use this withholding method regardless of whether an employee has filed the 2020 Form W-4;
- Wage Bracket Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later - Worksheet 2;
- Wage Bracket Method Tables for Manual Payroll Systems With Forms W-4 From Before 2020 - Worksheet 3;
- Percentage Method Tables for Manual Payroll Systems With Forms W-4 From 2020 or Later - Worksheet 4; and
- Percentage Method Tables for Manual Payroll Systems With Forms W-4 From Before 2020 - Worksheet 5.
The percentage method and wage-bracket tables for employers that use the 2020 withholding methods are no longer based on pay period withholding, since that calculation has been moved to a worksheet. Instead, the tables are based on annual income and are divided into two columns:
- Standard Withholding Rate Schedules; and
- Form W-4, Step 2, Checkbox, Withholding Rate Schedules.
The percentage method and wage-bracket tables that apply to pre-2020 W-4 forms are still based on pay period withholding.
Withholding Adjustments for Nonresident Aliens
Every year, an employer must make adjustments to the withholding amounts for nonresident aliens. Publication 15-T contains two tables for this purpose:
- Table 1, to be used for nonresident aliens who started working for the employer before 2020 and have not submitted a Form W-4 for 2020 or later; or
- Table 2, to be used for nonresident aliens who have submitted a Form W-4 for 2020 or later or started working for the employer in 2020 or later.