The IRS released a new draft of the 2020 Form W-4 today. A second draft will be released later in July while the final form will be released in November. The IRS has made small changes to the Form W-4 multiple times recording as far back as 1990. Some of these changes have been as small as adding one clarifying sentence to a paragraph. This year, the difference is much more significant. So, why is this such a big deal for taxpayers?
First, withholding allowances are going away. The 2017 Tax Cuts and Jobs Acts made major revisions affecting taxpayer withholding. More specifically, changes in the law made personal exemptions, which were tied to withholding allowances, obsolete. Withholding allowances were a long-time staple on the Form W-4.The internet is full of articles and step-by-step guides on how to fill out your Form W-4 and how many withholding allowances to claim. However, according to a study released in 2018, 55 percent of Americans still cannot explain the Form W-4. The complexity of the Form W-4 has confused Americans for years. The IRS hopes that the 2020 Form W-4 along with the elimination of withholding allowances will provide simplicity, accuracy, and privacy for the employee while minimizing burdens for employers and payroll processors.
Second, in order to ensure the most accurate withholding, the new 2020 Form W-4 asks employees to disclose personal financial information that they may not want their employer to know. For example, line 4a 'Other Income' states 'If you want tax withheld for other income you expect this year that will not have withholding, enter the amount of other income here. This may include interest, dividends, and retirement income.' Employees may not want to disclose the amount of income they make in a year from their side hustle, investments, and any other income-generating activity. The good news for employees who do not wish to disclose this information is that the field is optional
The draft of the 2020 Form W-4 is not final yet and may undergo more changes. The IRS is allowing comments on the form for 30 days, and then a new draft will be curated. Until the 2020 Form W-4 is posted with a standard cover sheet and announced as final, the 2020 form should not be used.
Taxpayers should be aware of the new changes, but they are not required to submit a new form in response to the redesign. Employers can continue to compute withholding based on the information from the employee's most recently submitted Form W-4.
Symmetry Software has been eagerly anticipating the first draft release of the 2020 Form W-4. As more changes will be made, Symmetry will continue to communicate the IRS updates.