On 1 January 2020, the United State’s Internal Revenue Service introduced a new version of Form W-4, also known as the Employee’s Withholding Certificate. Form W-4 is normally completed when an employee begins a new job, and their employer needs to know how much of the employee’s salary should be withheld for federal income tax.
The updated Form W-4 is intended to make the withholding process simpler for both employees and employers: if you are a business owner in the US and are wondering how the new form will affect you and your employees, check out our FAQs.
Why has Form W-4 been redesigned?
The new Form W-4 follows the Tax Cuts and Jobs Act (2017), which eliminated the personal exemption and made the US’ tax withholding system more transparent and accurate. The updated form reflects that change and has been made easier to complete: withholding allowances are no longer needed for Form W-4, and a series of complicated worksheets has been replaced with a series of questions.
Who needs to complete a new Form W-4?
Employees who completed Form W-4 prior to 2020 do not need to submit a new one. Employees who have started, or will start, a new job in 2020, will be required to complete the updated form.
How do I complete Form W-4
Form W-4 consists of 5 steps. All employees must fill out Step 1 and Step 5 but steps 2-4 should only be completed if adjustments need to be made to an employee’s withholding amount.
Generally, employees should increase their withholding if:
- They hold more than one job, or if they and their spouse both have jobs (Step 2), or
- They have income from sources other than their jobs or have self-employment income that is not subject to withholding (Step 4a)
Employees should decrease their withholding if:
- They are eligible for income tax credits such as credit for dependents or the child tax credit (Step 3), and/or
- They are eligible for other deductions (other than the basic standard deduction), including itemized deductions, IRA contribution deductions, or student loan interest deductions (Step 4b)
If employees don’t make adjustments in Steps 2-4, they may end up owing additional tax when filing their tax returns, and may even incur penalties.
Can I get assistance when completing Form W-4?
The IRS provides the Tax Withholding Estimator to help employees complete Form W-4. The Estimator tool can help employees with more complicated tax calculations, such as those who:
- Expect to work only part of the year
- Have income from self-employment
- Had a large refund or balance due in the previous year
- Are subject to additional taxes (such as the Medicare tax) or have dividend or capital gain income
- Want to optimize the accuracy of their withholding information
Where can I download the revised Form W-4?
The IRS host a downloadable copy of Form W-4: Employee’s Withholding Certificate.
Which employees must use the new form?
All new employees that are paid after 2019 must complete the new Form W-4. Employees who wish to adjust their withholding must also complete the new form. If new employees do not complete a Form W-4, they will be treated as single filers with no adjustments and will be subject to the standard deduction.
Can I ask employees paid prior to 2020 to submit new W-4 forms?
Employers can ask employees to submit updated W-4 forms but they do not have to comply: their withholding will continue based on the forms they previously submitted. If you need more information on how to accurately determine an employee’s withholding, the IRS provides resources online, including the Income Tax Withholding Assistant.
How should non-resident aliens complete Form W-4?
Non-resident aliens can continue to follow the instructions in IRS Notice 1392 when completing their W-4 forms. An adjustment for non-resident aliens is still in place: employers can find guidance in the 2020 Publication 15-T, Federal Income Tax Withholding Methods, on what additional amounts should be added to wages to work out non-resident alien withholding.
Learn more about the United States’ tax and payroll system with our Global Insight Guide to the USA: the guide contains information and insight into the USA’s global economic profile, major industries, and common business practices.