Editorial · December 12, 2019
Form W-4 Changes: What Employers Must Know for Payroll
Form W-4 changes are now final, and the biggest one is that withholding allowances are gone. The IRS released the redesigned form on December 5, 2019. It applies to new hires first paid after 2019, so payroll teams have a short window to get ready.
What changed on the form
The old form let an employee claim a number of allowances. Each allowance lowered the tax taken from a paycheck. The new form drops that idea. Its title is now Employee's Withholding Certificate, and it has five steps instead of a worksheet and a handful of lines.
Only two steps are required. Step 1 asks for name, address, Social Security number and filing status. Step 5 is the signature. Steps 2 through 4 are for people whose pay picture is more complex. If an employee fills in only Steps 1 and 5, the employer withholds at the standard rate for that filing status.
The filing status choices also moved. The box once labeled Single now reads Single or Married filing separately. Head of household is a clear choice. The old option to be Married but withhold at the higher Single rate is gone.
The five steps in plain terms
Step 2 is for workers with more than one job, or a married worker whose spouse also works. Tax rates rise with income, and each job on its own does not know about the other. This step fixes that gap. An employee can use the IRS online estimator, use a worksheet, or tick a box when there are only two jobs in total.
Step 3 covers dependents. The form shows the math right on the page. An employee multiplies the number of qualifying children under age 17 by $2,000. Then the employee multiplies other dependents by $500. The total offsets withholding directly. These amounts apply when income is $200,000 or less, or $400,000 or less for married couples filing jointly.
Step 4 is for other adjustments. An employee can add other income, such as interest or dividends. An employee can also claim deductions beyond the standard deduction, or ask for extra tax to be withheld each pay period. A worker who claims exemption from withholding writes Exempt on the form in the space below Step 4(c), then completes only Steps 1 and 5.
Who must use the new form
Current employees do not have to do anything. Staff who gave you a Form W-4 in any earlier year do not need to file a new one. Payroll can keep figuring their withholding from the form already on file.
The new form is required in two cases. The first is a new hire who starts after 2019. The second is a current employee who wants to adjust their withholding after 2019. Both must use the redesigned version. An employer may ask older staff to switch to the new form, but must make clear that switching is optional.
This means most employers will run two sets of rules side by side for a while. Some workers will be on the old form and some on the new one. Payroll software and outside payroll providers need to handle both.
What payroll should do before the new year
Start with your payroll provider. Ask whether its system can read the new form and the new withholding tables. If you run payroll in house, ask your tax adviser the same question. The IRS said it expects to release the final Publication 15-T, Federal Income Tax Withholding Methods, in mid-December. That publication holds the withholding tables and the instructions that match the new form.
Next, update your onboarding packet. Swap the old form for the new one in every hiring kit. Check that anyone who handles new hire paperwork knows the new form has no allowances line, so nobody tells a new employee to claim a number of allowances.
Then plan how to answer questions. Employees will ask whether they must file again. The answer for most is no. Some will want to use the new form anyway, and that is fine. A short note to staff can save your payroll desk many calls in January.
State rules and privacy points to watch
The federal form does not set state withholding. Some states still use allowances on their own forms. Ernst & Young notes that employers should remind staff to check state withholding. A worker who files the new federal form may remove allowances that still apply for state income tax.
Privacy matters too. Employees with more than one job may not want an employer to see that fact. Two Step 2 options, the online estimator and the worksheet, do not tell the employer there is a second job. The tick box does. Employers should not push any worker to pick one option over another. The IRS also added extra privacy language on the form's second page, so workers understand what the tick box shows.
Last, remember that the form says it is not valid unless the employee signs it, so an unsigned form cannot be used. Build a signature check into your process.
A short checklist
- Confirm your payroll system can handle both the old and new forms.
- Replace the old form in your new hire packet.
- Tell staff that most of them do not need to file again.
- Watch for the final Publication 15-T in mid-December.
- Check state withholding rules before you drop any allowance records.