The IRS recently released a completely revamped 2020 Form W-4, Employee’s Withholding Certificate. The new format requires businesses to change the way they determine the amount to withhold for Federal income taxes from an employee’s pay. These changes may significantly impact the way businesses handle payroll, including calculating withholding taxes, reporting it correctly on employee paystubs and W-2 Forms, and maintaining a dual payroll system that integrates the new withholding format alongside the existing one. In general, the purpose of Form W-4 is for an employee to determine the correct amount of Federal income tax to be withheld from their pay. The new form no longer determines withholding based on withholding allowances, instead, it adjusts tax withholding based on an employee’s expected income and deductions from other sources as entered on the Form W-4. It is important for employers and employees to understand how the new format impacts payroll and tax filing requirements.
