Here’s what you need to know about the new W-4 Form

If you manage payroll for your medical practice (or any business for that matter), you’ll want to take note. The IRS has released a new W-4 form for 2020!

What’s New About the 2020 “New W-4 Form”?

The new W-4 Form aligns with the 2017 Tax Cuts and Job Act by eliminating allowances and shifting towards dependents and deductions. It has an entirely new look and several new input fields replacing the familiar “withholding allowances” box. In some cases, the form can be completed by simply filling in the information in ‘Step 1’ and ‘Step 5’ which is all that is required; however, in many cases employees will need to provide details from their prior year’s tax return. If workers fail to complete this form properly, they may likely end up with a surprise tax amount due at year-end.

Points of concern related to the new W-4 form:

1. There is No Withholding Allowance (# of allowances) box on the new W-4 form.

2. There is a new Head of Household filing status option on the new form.

3. There is no longer an ‘Exempt’ from withholding checkbox. To claim exemption from withholding you must certify that you meet the conditions of exemptions (see the instructions before claiming exemption, a copy of the instructions are shown in the figure below for information purposes only) by writing “Exempt” on Form W-4 in the space below Step 4(c).

4. An option to use an IRS website (www.irs.gov/W4App) estimator that gives you the maximum accuracy and privacy in computing the correct amount of withholding for multiple jobs, a spouse who also works, special dependent situations, or other income or deductions.

5. A simple checkbox option [Step 2 – C] when an employee has two jobs with roughly the same earnings, which results in the standard deduction and tax brackets being cut in half for each job for purposes of computation of withholding. The checkbox must be selected on the new W-4 form for both employers.

6. Lines 3, 4(a) and 4(b) are all ‘annual’ (Full Year) amounts, while line 4(c) is a ‘pay-period’ (Per Paycheck) amount. This is likely a source of significant confusion for both employees and employers.

Processing payroll will require employers to take greater care in how these forms are managed from beginning through implementation. It may take employees longer to complete these forms because they will need access to prior tax information and other financial data, they may even have turn-around time in completing the forms due to those requirements over the prior fill in just a number of allowances.

Who Has to Complete the new W-4 form?

Employees hired on or after Jan. 1, 2020, are required to complete the 2020 W-4. The IRS is encouraging all taxpayers to take this opportunity to review their federal tax withholding information to make any necessary adjustments to income and marital status, as well as review estimated deductions and tax credits.
Employees hired before 2020 who don’t want to change their withholding don’t need to complete a new W-4; however, anyone who does wish to adjust their withholding after Jan.1, 2020 MUST provide their employer with the new W-4.
If you’re a medical, dental, or vision practice in the greater Houston, TX area and have any questions related to the new W-4 or any other medical payroll related issues, please contact us at 844-424-9637.