The IRS has published a new draft of the Form W-4, better known as the Employee’s Allowance Certificate. An essential part of any onboarding process is the form that tells your HR department how much to withhold from an employees’ paycheck. Once finalized, any new hire starting after January 1, 2020, will need to use this version.
The Updated W-4 is divided into (5) steps:
Step 1 – Personal Information
The portion where individuals disclose their filing status and personal information.
Step 2 – Account for Multiple Jobs
Instructions for anyone with more than 1 job or those residing in multi-income households.
Step 3 – Claim Dependents
For anyone filing with under $200,000, this section is used to calculate child tax credits claimed in 2020.
Step 4 – Other Adjustments
Here’s where you can account for additional income – like a side job, deductions, (other than the standard ones), along with any additional tax withholdings.
Step 5 – Signature Line
This latest version of the Form W-4 retires the longstanding “allowance” system. Allowances are claims an employee can make to reduce their taxable income. Previously, employees could claim a child, dependent, spouse, or even themselves as an allowance.
Now, instead of asking for allowances, the new form asks employees to state their filing status and whether they are ahead of the household.
If you have a basic or simple tax situation (like working one job or residing in a single-income household) you may be able to just complete step 1 and signing the form. At this point, your tax withholdings are calculated based on your filing status’s standard deduction. So, in most cases, this means no surprise tax bills.
However, keep in mind that tax situations are rarely straightforward. Also, this new format poses a significant risk to those not well-versed in tax law. So, in other words, the majority of people out there!
Many employers and HR teams will likely need to schedule training sessions with employees on how to complete this newly updated W-4. Not doing so, may result in running incorrect filings.
If you’re a small to mid-sized business, you most likely have other things to deal with – like running your business! Having an automated platform manage and pay your quarterly and year-end tax filings will save you time, money and the headache of doing it on your own. So, consider Fingercheck to easily automate your payroll and HR needs.