How to Use the New W-4 Form to Calculate Employee Withholding

New W-4 Form for New Hires and Changes after January 1, 2020

Calculating Employee Tax Withholding
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Are you withholding the right amount of income tax from employee paychecks? The new tax law has made changes in the method you need to use to calculate withholding.

The IRS has changed the W-4 form for 2020 and along with it, the process for calculating withholding has changed. These changes in withholding are necessary because of the removal of the personal exemption in the new tax law.

The new withholding tables and W-4 form begin in 2020. See this article on how to calculate employee withholding for 2019 payroll taxes. Don't use the new W-4 or the new calculation method until January 1, 2020.

What’s a W-4 Form? Which Version Should I Use to Calculate Withholding?

The W-4 form is required for all new hires, to be used as a way to determine the amount to be withheld from the employee’s pay each pay period. The employee gives you information on tax status and possible deductions and other factors and you use to find the withholding amount. An employee can change the information on their W-4 at any time, and as often as they wish, but only once per pay period. 

Your company must use the new 2020 version of the form starting January 1, 2020, for new employees and for employees who wish to make changes on the form after this date.

You will need to continue to use the information from the old W-4 form version for existing employees who signed the old (pre-2020) version of the form. You can request a new form from all current employees, but they don’t have to give it to you.

This new form means you will have two different versions of the W-4 form to use when calculating federal income tax withholding from employee paychecks.

The process is different for pre-2020 W-4 forms and the new 2020-and-beyond forms.

You don’t need to use two different systems for pre-2020 and 2020 W-4 forms. The IRS says that the same set of withholding tables will be used for both sets of forms.

Changes On the 2020 W-4 Form 

The new form is titled “Employee’s Withholding Certificate.” The previous W-4 form allowed employees to request per-pay-period adjustments using withholding allowances. They could override the criteria of filing status (single/married, etc.) and marital status by specifying a specific amount. Employees can’t use allowances (since 2018 tax returns), because they were tied to the personal exemption, which is no longer in use on Form 1040.

The filing statuses of “Married” and “Single” have been changed to “Single or Married filing separately,” “Married filing jointly,” or “Head of Household.” 

The new form also has more options for employees to get a more accurate withholding amount, which also means a more complicated calculation for you as the employer. These possible options that you will have to include in your withholding calculations are:

  • Taking a second job into consideration when doing the withholding calculations. They can do this by checking a box in Step 2(c)
  • Adjusting for dependents based on income and the number of qualifying children and other dependents
  • Increasing withholding for other income, from sources like interest, dividends, and retirement
  • Taking deductions other than the standard deduction
  • Adding an extra withholding amount to be withheld each pay period

A new IRS publication 15-T for 2020 gives details on how to figure withholding for both the old and new W-4 forms. The new form requires the employee to go through more steps in completing the form. 

New withholding calculation tables have been added to Publication 15-T for the new calculation method. Publication 15-T includes these five tables: 

Table

Method W-4 dated Annual wages

1 (for Automated Payroll Systems)

Percentage Any W-4 All 

2

Wage Bracket

2020 or later

Up to $100,000

3

Wage Bracket

Before 2020

Up to $100,000

4

Percentage

2020 or later

All

5

Percentage

Before 2020

All 

How to Calculate Withholdings Using the 2020 W-4 Form

To calculate withholding for an employee, you’ll need to start by selecting one of the tables above. Here’s an example for Table 2: Wage Bracket Method for Manual Payroll Systems with Forms W-4 from 2020 or Later. You will also need the employee's W-4 Form. This is a general overview of the steps:

  • Step 1: Use the worksheet to get an Adjusted Wage Amount
  • Step 2: Use this Adjusted Wage Amount with the Table to find a tentative amount for withholding. You’ll need to know the pay period type, employee’s filing status and whether the employee has checked the box in Step 2 of Form W-4.
  • Step 3: Account for any tax credits from Step 4 of the W-4.
  • Step 4: Add the amount in Step 3 to any additional amounts from Step 4(c) of the employee’s W-4. This is the amount to withhold from the employee’s wages for the current pay period

You must be ready to use the new 2020 withholding calculation process by January 1, 2020. If at this point you are overwhelmed by the new calculations, maybe it’s time to consider outsourcing payroll or getting a payroll processing service.

This information is a general overview. The actual process will depend on your business situation and the individual employee information on the W-4 form. If you haven’t already given employees information about the changes in withholding, you might want to give them this IRS publication with a link to a withholding estimator.

Article Sources

  1. Internal Revenue Service. "2020 Form W-4," Accessed Oct. 7, 2019.


  2. U.S. Congress. Public Law 97. "SEC. 11041. Suspension of Deduction for Personal Exemptions," Accessed Oct. 7, 2019.


  3. Internal Revenue Service. "Topic No. 753 Form W-4 – Employee's Withholding Allowance Certificate," Accessed Oct. 7, 2019.


  4. Internal Revenue Service. "FAQ's on the Draft 2020 Form W-4," Accessed Oct. 7, 2019.


  5. IRS. FAQ's on the Draft 2020 Form W-4. "2. What happened to withholding allowances?" Accessed Oct. 7, 2019. 


  6. Internal Revenue Service. "Employee's Withholding Certificate," Accessed Oct. 7, 2019.


  7. Internal Revenue Service. "Publication 15-T. Federal Income Tax Withholding Methods," Pages 4-18. Accessed Oct. 7, 2019.


  8. Internal Revenue Service. "Publication 15-T," Pages 6-9. Accessed Oct. 7, 2019.