Employers need to update their new hire paperwork to include the recently revised Form W-4 for 2020. The new Form W-4 reflects the changes made to the tax code in the 2017 Tax Cuts and Jobs Act, which changed the standard deduction and created a new dependent credit. As a result of these and other changes, the prior version of the Form W-4 did not accurately estimate income tax withholding for certain individuals. The new version better estimates an individual’s income tax for purposes of withholdings.
Gone is the concept of the employee stating a certain number of “allowances.” Instead, the employee is asked to disclose marital status and, if the employee has another job or working spouse, to use the IRS “estimator” to estimate an amount that the employer will use in calculating withholding.
All new hires must complete this updated Form W-4 and existing employees must use the new form to change their withholding elections. Further, any employee who decides to change the amount withheld must use the new form.
Importantly, employers cannot require current employees to complete a new Form W-4. However, employees are encouraged to do so as the old form may not accurately estimate their taxes. Not updating may result in the individual having a lower tax refund or even owing taxes when they submit their tax returns for 2020.