In 2017, the Tax Cuts and Jobs Act made major changes to how taxes are withheld from an employee’s paycheck. To accommodate these changes, the IRS announced they would be redesigning the withholding form.

Starting in 2020, employers will give out the redesigned W-4 to new employees. Some companies may want to consider having current employees also sign new forms. Here’s what you need to know about the new W-4:

What does the new W-4 do?

W-4 forms are what the IRS uses to determine how much tax to withhold from an employee’s paycheck. With the current form, this is done with a worksheet that determines how many dependents an employee has and other exemptions that would allow them to pay less tax. If an employee miscalculates this number on the form, they can wind up underpaying and owing taxes at the end of the year or overpaying and having taxes withheld that will later be refunded.

The new form eliminates the worksheet and replaces it with a five-step process to calculate withholdings. The form also reflects changes from the Tax Cuts and Jobs Act that increased standard deductions, eliminated personal exemptions, increased child tax credits, limited itemized deductions, and updated tax rates and brackets.

Why the redesign?

Along with accommodating the changes from the Tax Cuts and Jobs Act, the form was also designed to be simpler for employees to understand. With the new form, the IRS hopes to eliminate the confusion many employees have when trying to determine how much tax they need to have withheld.

Do my current employees need to fill out the new form?

The short answer is no. Current employees will be able to still use the same W-4s that they filled out when they started their jobs. However, the IRS recommends that employees fill out a new W-4 every year to ensure that the correct amount is being withheld from their paycheck. Certain life changing events like getting married, having a child, or a change in income will require an employee to fill out a new W-4 form.

Businesses should check in with their employees about their withholdings to make sure that they are calculating the correct amount. In some cases, it may be best practice to just have everyone at the company fill out a new form.

The W-4 isn’t the only thing changing in 2020. Tax regulations and employment laws are constantly shifting. Learn how LBMC Employment Partners can help your company stay organized and in compliance. Contact us today.