Earlier this year, the IRS released a draft of the new Federal Income Tax Withholding Methods (Publication 15-T). The draft included:
- An Employer’s Withholding Worksheet, which allows employers to calculate 2020 withholding using either previously completed Forms W-4 or the newly designed draft form
- Percentage Method Tables
- Wage Bracket Method Tables, which include three filing statuses: single, married filing jointly and head of household
The biggest change? No more allowances.
Employees fill out IRS Form W-4 (Employee’s Withholding Certificate) with information employers need to determine the amount of federal income tax to withhold from each of the employee’s paychecks. As part of the TCJA, the IRS separated the form into five steps and removed withholding allowances.
Previously, the value of withholding allowances was tied to personal exemptions. But starting January 1, 2020, employees won’t be able to claim personal or dependency exemptions anymore. That means employees can no longer request adjustments to their withholding via allowances. Now, they’ll need to use the revised 2020 Form W-4 to indicate specific increases or reductions in taxes and wage income subject to withholding.
These revisions were intended to reduce the form’s complexity and increase withholding accuracy. It uses the same basic information but replaces worksheets with questions that are supposed to make the process easier for employees. That said, any change to tax law can be confusing—and this is the first major overhaul in 30 years. If your employees have questions about filling out the new draft Form W-4, point them to this helpful FAQ from the IRS.