19 August 2019 IRS has issued a second draft of 2020 Form W-4 and instructions for federal income tax withholding The IRS has now issued the second draft of 2020 Form W-4, Withholding Allowance Certificate that is simplified and streamlined from the prior version. Also released is the second draft of the corresponding federal income tax withholding instructions in Publication 15-T, Federal Income Tax Withholding Methods. The IRS explains that there are no changes in the federal income tax withholding calculations as explained in the first draft, rather, the publication is now expanded to include separate computations based on the method of withholding (Percentage or Wage Bracket Method), payroll system (automated or manual), and whether employees have a Form W-4 on file that is older than the 2020 version. The final Publication 15-T will be issued in late fall to include dollar amounts that cannot be determined until later in the year. No other changes will be made, the IRS states. For an explanation of the basic federal income tax withholding instructions for 2020 and future years, see Tax Alert 2019-1126, and for an explanation of the 2020 Form W-4, see Tax Alert 2019-1023. As in years prior to 2020, an adjustment is needed in the federal income tax withholding calculation for US nonresident alien employees, except for nonresident alien students from India and business apprentices from India. The adjustment calls for adding a specified amount to the nonresident's wages only for purposes of computing the federal income tax withholding, the amount is not reported in Form W-2, box 1. Unique for 2020 and future years, there are now two tables (rather than one) that employers will need to use for determining the dollar amount that is added to the wages of US nonresident employees before figuring the federal income tax withholding. If US nonresident aliens began work for you before 2020 and have not submitted a Form W-4 for 2020 or later years, the amount in Table 1 is added to their wages. If the US nonresident aliens began work for you in 2020 or later years or have furnished you with a Form W-4 for 2020 or later years, the amount in Table 2 is added to their wages. Nonresident alien federal income tax withholding adjustment tables (dollar amounts subject to change for 2020)
The revisions to the Form W-4 and the federal income tax withholding instructions for 2020 are significant. Businesses will need to carefully map their existing file structures that rely on employee Form W-4 data to confirm they correspond to the new data points required in the 2020 federal income tax withholding calculations. The changes coming for 2020 also have a significant impact on employees. Employers should consider now what communications will be made to employees about these changes and what third-party resources from individual income tax specialists will be available, if any, to respond to employees' specific questions about the 2020 Form W-4.
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