Most entrepreneurs turn to outsourcing payroll in the early stages of their business, but soon…
In December of last year, the IRS released a new W-4 form. This form will affect any new employees hired after January 1, 2020 and any employee who decides to update their federal tax withholding. The changes made to this form are intended to simplify the federal withholding reporting process and incorporate specific questions that will help generate a more precise calculation of federal withholdings.
The main W-4 form change is the complete abolishment of allowances. In their place is a sequence of numbered steps:
1. Entering personal information
This section has not changed from the previous W-4 form. You will still identify yourself by inputting your social security number, address, name, marital status, etc. If you choose to only fill out this step and then sign the form, your withholding will be calculated based on the tax rates and standard deduction of your filing status.
2. Multiple jobs or spouse works
In step 2, you will include other income that must be accounted for. You can skip this step if you are not married, have one job, or if you and your spouse are filing separately. This is the most notable change from the previous W-4 form, asking you to include your spouse’s salary as well as any money that you earn from other jobs.
There are a couple of options for this step: you can either use the Multiple Jobs Worksheet, which generates a rough estimate, or the IRS Withholding Estimator for a more accurate estimate.
3. Claim dependents
In this step, you will multiply the number of qualifying dependent children under the age of 17 by $2,000 and list the calculated monetary value. Any other qualifying dependents (i.e., an older parent that you care for at home) can be multiplied by $500. This monetary value is not to be confused with the allowances previously included on W-4 forms, but instead, thought of as tax credits.
Credits and income levels have changed, and the income threshold for individuals to phase out of the tax credit has been raised. For example, if you alone (not including your spouse) file with an income level of less than or equal to $200,000, you will receive a $2,000 child tax credit per number of listed dependents younger than 17 and $500 for other listed dependents.
4. Other adjustments
This step is optional, and is meant for you to report other income sources that are not job-related. It will give you the most accurate withholding amount, and includes things like retirement income, interest, dividends, and other deductions (not including the standard deduction). This section also allows you to enter any extra withholding that you’d like to be taken out every pay period.
The 2020 W-4 form does not have a specific place for you to claim exemption. However, if you qualify for exemption, you must only complete steps 1(a) and 1(b), and write “exempt” underneath step 4(c) and above step 5.
After ensuring that the form contains your most accurate income information, sign and date the document.
To download the 2020 W-4 form, click here. For more questions on the new form, check out these FAQs on the IRS website or contact Delta Administrative Services! Our experienced HR personnel have several years of experience in dealing with payroll services and the many forms that come with it, and are always ready and willing to help.