On May 31, the IRS released a draft 2020 Form W-4 that addresses some, but not all, of the privacy concerns that led the IRS to abandon the redesigned form for 2019. According to an accompanying news release, the IRS anticipates releasing a near-final form in July to allow payroll processors and employers to begin work on programming updates to their systems. Minor changes may be made based on comments to that draft form, but stakeholders are encouraged to submit their comments on the released draft by the end of June to ensure they can be taken into account. Draft form instructions are expected to be released in the next few weeks for stakeholder comment.
The new draft directs filers to the IRS withholding calculator to determine how to complete the form without disclosing all of the personal information that would be disclosed on the form if it were fully completed. It also requires less information to be shared with employers, even if the employee does not use the withholding calculator. As with the 2019 draft, the 2020 draft eliminates the concept of withholding allowances to reflect the elimination of personal exemptions under tax reform.
Step 1 of the draft 2020 Form W-4 allows employees to identify their return filing status. The options include the “Head of Household” status for the first time. Although it has been available as a filing status for a number of years, it has not been reflected on the Form W-4. This update will require payroll processors and employers to update their payroll systems to accommodate the change.
Step 2 of the draft form directs employees with multiple jobs in their households to the online withholding calculator for the most accurate withholding. Employees will make adjustments to withholding on the Form W-4 for only one of the jobs. In lieu of using the withholding calculator, employees with multiple jobs will have two other options for accurately completing their Forms W-4.
Employees with two jobs in their household—either the worker holds two jobs simultaneously or the worker and a spouse each hold a single job—can complete a checkbox on the Form W-4 indicating only two jobs in the household. Employers will calculate withholding for such a worker by assigning half of the standard deduction for the marital status. Using the checkbox may result in overwithholding, particularly if the two jobs have disparate incomes.
Employees with two or three jobs in their household can complete a worksheet on page 3 of the form and use tables included with the form to determine the amount of additional withholding to request on Line 4c of the form. (If the lower paying job has annual pay of more than $100,000, the employee is directed to IRS Publication 505 for additional tables.) In the 2019 draft form, the employee would have been required to report the total amount of wages from all lower-paying jobs in the household on the face of the Form W-4. This raised privacy concerns because employees may not wish to share that information with their employer. That concern is now alleviated because none of the salary information is included on the worksheet, which includes only the values from the tables. Moreover, the worksheet is not required to be submitted to employers along with the form.
Step 3 of the 2020 draft form allows employees to reduce their withholdings to account for the child and dependent care credit. Although the form itself appears to allow for only this credit, the employee may include in the total on line 3 any other credits to which he or she may be entitled, such as the foreign tax credit or educational tax credits.
Deductions and Additional Income
If an employee seeks to adjust his or her withholdings to reflect itemized deductions or additional non-wage income, he or she may do so in Step 4 of the draft form. The adjustments are made by reporting the amount of deductions on Line 4b and the amount of non-wage income, such as interest and dividends, on Line 4a. If the employee has self-employment income that may be subject to Self-Employment Contributions Act (SECA) taxes, the instructions on the form direct the employee to use the online withholding calculator to complete the form. An employee who does not want to disclose interest and dividend income on the form provided to his or her employer may either use the withholding calculator to complete the form (thus not requiring an amount to be included on Line 4a) or make estimated tax payments on such income. However, there is no means for an employee with itemized deductions to reduce withholding other than by reporting the anticipated itemized deductions on Line 4b.
The IRS released a set of employer FAQs (and employee FAQs) with the draft form. According to the FAQs, employees will not be required to submit a new Form W-4 if the employer has an existing form on file and the withholding tables will accommodate the use of both forms. However, such an employee will have to use the new form to make withholding adjustments beginning in 2020. If an employee is hired after 2020, the employee also must use the new form. If the employee fails to submit the form to the employer, the employer must withhold based on a filing status of single with no adjustments.
The FAQs indicate that employers will be permitted to request that existing employees complete a new Form W-4. The employer must inform the employees that they are not required to submit a new form and that, if they do not do so, the employee’s withholding will be based on the existing Form W-4 on file.
The FAQs indicate that an adjustment will continue to be necessary for nonresident alien employees. Details regarding the adjustment will be included in IRS Publication 15-T (2020) to be released later this year. A draft Publication 15-T (2020) was released on June 6, 2019.