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When to start using the 2020 W4

Good morning, ladies and gentlemen. Welcome to the people processes podcast where we dive deep into the tools, your laws and processes that you need to scale and grow your people processes. I’m your host, Rhamy Alejeal and I’m the CEO of people processes. My company helps organizations all across the USA streamline, optimize, implement, and revolutionize their HR operations. We’ve helped hundreds of companies and thousands of HR leaders across the world get their people processes right. Today, we are going to look into the new form W4 for 2020. We’re going to talk about when it’s used, how it’s used, a little bit of the history of it, and we’re going to actually open it up and walk through it together, but before we go that deep, I want to ask you to please subscribe to our podcast. You can find us on iTunes, Google podcasts, Spotify, Stitcher, pretty much any podcatcher of your choice. You can also subscribe at peopleprocesses.com which will give you exclusive subscriber only content and I’d love to see you there.

Now let’s dive right in. A little bit of history. In May 2019, not too long ago, the IRS issued a first draft of the 2020 form W4 employees withholding allowance certificate. This new form will help employees improve withholding accuracy and fully reflect the changes including in the TCG JA the tax cut and jobs act of 2017 which contained major revisions affecting taxpayer withholding. Since then, we’ve had to use the old form still and it doesn’t provide as much information as is needed, and some irrelevant information based on the new law. The redesigned W4 no longer uses the concept of withholding allowances, which was previously tied to the amount of the personal exemption due to changes in the law.

Personal exemptions are currently not a central feature of the tax code. The primary goals of the new design are to provide simplicity, accuracy, and privacy for employees while minimizing the burden for employers and payroll processors like us, at least according to the IRS. So what happened in August, 2019, the IRS released a second draft of the form. The title of the W4 was changed to employee’s withholding certificate. Removing the word allowance from an entirely the computation of withholding did not change from the first draft at all. Employees who have submitted a form W4 in any year before 2020 will not be required to submit a new form merely because of the redesign. They made that clear in the instructions in the second draft, employers can continue to re compete withholding based on the information from the employees. Most recently submitted W4.

So when do you start using this? You start using this on new hires starting in 2020. Also, if someone wants to make a change to their withholding in 2020, you use the new W4, not the old one, but you don’t need to worry about blasting this out to all of your employees and getting new documents all for January. Just recently, December 4, 12 days before this recording, the IRS issued the final form W4 for 2020 changes since the last draft include basically minor edits to the verbiage. Also on page two under your privacy, more language was added to help the taxpayer understand exactly what went, what checking the box in step 2 may do to withholding. We’ll talk about that in a second. Basically they gave a little bit more information. The IRS encourages all tax professionals to become familiar with the new forms so that they can help tax payers with proper withholding in 2020 so let’s get into that form A.

All right, so if you look at the W4, by the way, the link to the new W4 along with publication 15-T which is the third draft, it’s not the final version, but it’s the instructions for the form and it’s in its third draft along with an FAQ provided by the IRS are all available and peopleprocesses.com. So if you’re listening to this on iTunes or somewhere else, go on over there, subscribe while you’re at it and get our newsletter and you can get direct links to all these different pieces. In the actual form itself, it looks pretty similar. It say W4 on the top left. First section, super easy. First name, last name, social security number, address, city, state, and zip code. Great. Then it asks single or married filing separately, married filing jointly or qualifying widower and head of household, which means check only if you’re unmarried and pay more than half the costs of upkeep of keeping up a home for yourself and a qualifying individual. So those are your three options. Great. Click one that’s straightforward.

Technically, that can be the end of the form, but we’re going to add a couple more. So complete steps 2 to 4 only if they apply to you. Now, how do we know that they apply to you? Alright, complete this step if you hold more than one job at a time or are married filing jointly and your spouse also works the correct amount of withholding depends on income earned from all of these jobs. So the W4 is now going to get information on whether you need information about your spouse’s income as well. So this is pretty cool. So it says, do one of the following, only one of the following. If you have more than one job or you have a spouse who works in your filing jointly, you want to use the estimator@irs.gov/w4app, which is actually not too bad.

Use the multiple jobs worksheet on page 3 and enter the result in step 4. See below. Or if there are only two jobs total, you may simply check this box. Do the same on the W4 for the other job. This option is accurate for jobs with similar pay, otherwise more tax than necessary may be withheld. All you gotta do is check the box. So if you have two working or you have two jobs that pay a similar amount, you simply check that box and you move on. If you’re married filing jointly, then over in a step to be the multiple jobs worksheet. Basically it says, if you have two jobs or you’re married filing jointly and you use a higher spot and you and your spouse each have one job, find the amount from a table on page 4, which is basically, a go to the higher paying job and look at your annual salary.

And then that’s what it shows on the left. So it says like zero to 10,000, 10,000 to 20,000 on the left in a column. And then across the top it says a lower paying job, annual taxable wage and salary. And it makes a little chart. So let’s say you make 80,000 and your spouse makes 30,000. It takes you over to the chart and it gives you a number 3440 and it asks you to then put that on the multi wage worksheet. So you can do it that way. Again, if you’re paid a similar amount, you can simply check the box under step two. Finally, you go onto step 3 and it says, complete this for only one of the jobs. And so whichever one is the highest paying job of your spousal income or your two jobs that you’ve told yourself you would complete step 3 on.

If you don’t have more than one job, you don’t need to complete step 3. You don’t need to do step 2 either. If you are married and you know, and not filing jointly, you don’t need to do step 2 or 3. But if you are, you go in here and it says, Hey, step 3 claim defendants. This is for those of you who would only do it on one of the jobs, right? Just one. Don’t do it on the extras. If your income will be less than 200,000 or less than 400,000. If married filing jointly, multiply the number of qualifying children under age 17 by 2000, multiply the number of other dependents by 500. And then combine the totals to fill out your final number. So you got one kid, you got one spouse, maybe one who’s not working. You put 2,500 in step 3. That’s simple. If you were the lower income spouse, you would put nothing in 3.

Finally, there’s the step 4 other optional adjustments, which you can say, Hey, I make extra money here, from riddle properties or something like that. Or driving an Uber. You can put in other income. You can also put in other deductions other than the standardized worksheet if you want. The vast majority of people will not use that. You can also put in your extra withholding, which again is an option that was on the prior SA W4. Again, very rarely used for most, but that’s foresee. So for A, B and C, completely optional, but some people will use them. Then you sign and date and then the employers numbers go on the bottom, first name and address, first date of employment and the EIM. And that’s it. That’s the W4. Now there’s a little bit more complexity to it because it’s kind of asking about total combined household income as opposed to just wanting to ask you the number of withholding. But that’s going to lead to such more accurate withholding that I’m quite pleased about it, but I understand it’s going to be a bit of a booger. So how do you fill it out? We just went over it. When do you start using it in 2024 new hires only or people who want to make updates in 2020.

Going forward go to peopleprocesses.com download a new one. Now, normally I just want to drop a little plug in here to let you know. Of course, in our HR systems, these are all part of your on-boarding systems and our HR base base HRS platform, they connect directly to payroll. They handle all the calculations on the back end. They’re easy for employees to access an update. Pretty cool little tool. If you’re not on it yet, let us know. We’d love to show you around, but many software out there are going to have, it doesn’t just have to be ours. Just need to get that W4 filled out for your new hires starting in 2020. I hope this was helpful for you. Hope you’ll learn something, go to the website, download the form, and look it over yourself. The lot of this episode will make a lot more sense that way. Thank you for taking the time. My name is Rhamy Alejeal, and I’m so excited you joined me to here today. Now it’s time for you to go out there, have a great day, and get your work done.

About the author, Rhamy

Rhamy grew up watching and working with his mother and grandmother in the senior insurance market. This familiarity with the struggles faced by people trying to navigate the incredibly complicated and heavily regulated healthcare market led him to start Poplar Financial while working on his degree at the University of Memphis. After completing his MBA and Bachelors in Finance and Economics, Rhamy guided Poplar Financial through the disruptive opportunity that is the Affordable Care Act. Since then Poplar Financial has received numerous awards from major insurance carriers and has completed its fourth year in a row of doubling in size. Now his team focuses on the processes around human resources and specializes in providing companies with between 20 and 1000 employees with the payroll, benefits, and HR needs.

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