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Major Form W-4 Changes Pushed to 2020

Oct 12, 2018 11:09:28 AM

We have covered the major changes to Form W-4 planned for 2019 on Proliant’s blog in the past, however September 2018 had the Internal Revenue Service (IRS) announce that many of those proposed changes will now be pushed to 2020. This change specifically being about Employee’s Withholding Allowance Certificate. The proposed changes would have placed a major strain on most payroll systems and departments, requiring support of two different withholding systems to track. Now, 2019’s Form W-4 will be very similar to the current 2018 Form W-4, with the standard modifications on inflation adjustments and other minor alterations. A draft of this form is expected to be produced soon.

Steven T. Mnuchin, Secretary of The U.S. Department of the Treasury announced in a news release, “The Treasury and IRS are working diligently to implement the most comprehensive tax legislation in more than 30 years. Launching the redesigned form in 2020 will allow the Treasury and the IRS to properly implement changes to the withholding system and ensure taxpayers have a positive and simplified experience.” The IRS and Treasury plan to continue working closely together, and with the payroll and tax community, to make changes for 2020’s Form W-4. The changes aim to make the withholding system, “more accurate and transparent to employees”.

Form W-4 establishes an employee’s marital status and withholding allowances for federal and state income tax withholding. When changes are made to Form W-4, starting in 2018 for example, the IRS stated that employees wouldn’t be required to complete a new form, but it was strongly recommended. Such would be the case for the major withholding changes discussed here, however the IRS has since stated that employees will not be required to complete a new Form W-4 for 2019. Employers will be able to use employee’s 2018 Form W-4s through the 2019 year.

The IRS recommends that employees use the provided W-4 calculator to check their payroll withholding for 2018 and adjust any allowances if needed. Employers are encouraged to educate their employees on the W-4 calculator so that there not be any surprises when filing their annual tax returns.

The full list of proposed changes to the 2019 Draft Form W-4, now pushed to 2020, has been compiled by the ADP Research Institute and can be found below:

  • Number of Allowances Eliminated
    One prominent proposed change was that the total number of allowances was to be eliminated.
  • New Marital Status box - Head of Household
  • Additions to Income
    A new line asked employees to enter estimated non-wage income not subject to withholding (such as interest and dividends). Currently, employees with non-wage income must convert such amounts to equivalent per-payroll additional amounts to withhold.
  • Itemized and Other Deductions
    Another new line asked for estimated subtractions to income based on expected deductions (such as state and local taxes, mortgage interest and charitable contributions). Currently, employees must convert deductions into equivalent withholding allowances. Amounts entered were to be full-year estimated deduction totals, so payroll systems in 2020 may need to include full-year amounts in withholding calculations.
  • Tax Credits
    This new line would have asked for the full-year value of any tax credits, such as the child tax credit. Currently, tax credits are translated by employees into additional withholding allowances. With the 2020 Form W-4, full-year tax credit amounts may be directly entered into payroll systems.
  • Additional Household Income Due to Multiple Jobs
    If applicable, employees may be asked to enter the income associated with any second job, and/or the annual wage income of any spouse. Today, employees use a Form W-4 worksheet to calculate an additional amount to withhold per pay period to cover the potentially higher tax bracket and tax rates for the combined family income.

To read the official Form W-4  statement from the U.S. Department of Treasury you can click HERE

 

 

 

Bibliography

ADP . (2018, September). Legislative Updates. Retrieved from ADP Research Institute : https://www.adp.com/resources/articles-and-insights/articles/e/eow-major-changes-to-irs-2019-form-w4-deferred-to-2020.aspx?referrer={E2920188-A93E-4144-90CE-442A865BF40B}

U.S. Department of the Treasury. (2018, September). Press Releases . Retrieved from U.S. Department of the Treasury: https://home.treasury.gov/news/press-releases/sm490

 

 

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