2020 IRS Changes to Form W-4 Mean Withholding Changes for Some Employers

03.10.20

With a new decade comes a newly redesigned Form W‑4, the federal form used to withhold the correct amount of federal income tax from employees’ paychecks. Beginning in 2020, the IRS substantially revised the Form W‑4 in response to tax law changes under the 2017 Tax Cuts and Jobs Act. The changes mean employers need to begin using the redesigned Form W‑4 and may no longer be able to use the Form W‑4 to withhold state income tax for newly hired employees.

Who Needs to Use the New Form W‑4?

New employees first being paid wages in 2020 must use the new Form W‑4. In addition, employees who worked for an employer before 2020 but are rehired during 2020 must also use the new Form W‑4. Failure to use the new Form W‑4 will prompt the IRS to treat the employee as a single filer with no other adjustments, which may increase the amount of taxes initially taken from the employee’s paycheck and lower their weekly take home pay. 

Existing employees who provided an old Form W‑4 before 2020 do not have to submit a new Form W‑4. However, any existing employees that wish to adjust their withholdings in 2020 and beyond must use the new Form W‑4 to do so. The IRS website provides useful guidance for navigating the new Form W‑4 requirements. 

Can Employers Still Use the Form W‑4 for State Income Tax Withholding?

The new Form W‑4 redesign may require employers to use a separate state income tax withholding form starting in 2020. Previously, many states allowed employers to use the federal Form W‑4 to withhold both federal and state income tax for their employees. However, because the new Form W‑4 eliminates withholding allowances, the new Form W‑4 no longer aligns with several state income tax laws that still permit withholding allowances.

In response to this change, some states now require a separate state tax withholding form be used for new employees beginning in 2020. In these states, the new Form W‑4 will not satisfy an employer’s state income tax withholding obligations and employers must file a separate state withholding form in addition to the federal Form W‑4. Failure to file the appropriate state tax withholding form may result in underpayment of state income tax and subject the employer to tax penalties and fines.

For example, Wisconsin previously allowed employers to use the Form W‑4 to withhold both federal and Wisconsin income tax. Beginning in 2020, however, Wisconsin now requires a separate state withholding form be used for newly hired employees in 2020 and for any existing employees who wish to change their tax withholdings. Existing employees who previously submitted an old Form W‑4 before 2020 and have no changes to their tax withholdings are not required to submit a state form. Instructions from the Wisconsin Department of Revenue summarizing which employees need to use the Wisconsin Form WT‑4 can be found here.

Not every state requires employers to use a separate state tax withholding form, however. Some states amended their tax laws to accommodate the new federal Form W‑4. In Colorado, New Mexico, North Dakota, and Utah, the new Form W‑4 currently satisfies both federal and state income tax withholding obligations.

Employers should consult with counsel and check their relevant state laws to determine whether the new Form W‑4 changes require them to file a separate state tax withholding form for all newly hired and some existing employees in 2020. 

• Taxation