An employer is required to withhold federal income tax from an employee’s wages. The employee is responsible for providing IRS Form W-4 to the employer so that the employer will know how much tax to withhold from the employee’s income. Once provided, the Form W-4 is effective until the employee provides an employer a revised form. If an employee does not provide a completed Form W-4 to an employer, then tax must be withheld as if the employee were single with no allowances.
The concept of withholding allowances was tied into the amount of the personal exemption claimed by the employee. However, with the repeal of the personal exemption in the 2017 Tax Act, the IRS has been working on redesigning the Form W-4. On May 31 the IRS issued a draft of the new Form W-4 to be used by employers and employees beginning in 2020. The new form no longer uses the concept of withholding allowances and implements other changes made by the 2017 law.
According to IRS Commissioner Chuck Rettig the goal of the new Form W-4 is to “provide simplicity, accuracy and privacy for employees while minimizing the burden for employers and payroll processors”. I think, just for fun, I will hold a contest and let you be the judge.
Which form do you think is easier? And if privacy is your goal, look closely at section 4 of the draft Form W-4. Do you really want to let your employer know how much other income you have and whether you have itemized deductions?
The final draft of the new W-4 is expected in mid-to-late July so that employers will have the chance to update their systems before the form is released in November. Instructions for employers are also expected soon. Note that nothing in the law requires employees to submit a new Form W-4 merely because of the redesign. Employers likewise can continue to withhold from an employee’s wages based on the information on the most recent Form W-4 submitted by the employee. Employees who have major life changes such as marriage, divorce, a new child, or additional income should consider reviewing their withholding.