On December 5, the IRS issued the final 2020 Form W-4 (Employee’s Withholding Certificate). The new form no longer uses withholding allowances, but has been replaced by dollar values to calculate withholding. Instead, there is a five-step process and new Publication 15-T (Federal Income Tax Withholding Methods) for determining employee withholding.

The IRS has created a five-step process (only Steps 1 and 5 must be completed by all) for determining employee withholding as follows:

  • Step 1. For an employee’s personal information and his/her anticipated filing status to determine the standard deduction and tax rates used to compute withholding.
  • Step 2. For an employee who has: (1) more than one job at the same time, or (2) are married filing jointly and both the employee and his/her spouse work.
  • Step 3. Provides instructions for determining the amount of the child tax credit and the credit for other dependents that you may be able to claim when you file your tax return.
  • Step 4. For an employee to enter: (1) other estimated income for the year (e.g., interest, dividends and retirement income), (2) deductions other than the standard deduction to reduce withholding and (3) any additional tax the employee wants withheld for each pay period.
  • Step 5. The employee must sign and date the form.

Guidance to Help Employers

  • All new employees hired as of January 1, 2020, must complete the new form.
  • Any adjustments made after January 1, 2020, must be made using the new form.
  • You can ask employees hired previous to January 1, 2020 to use the new form, but they are not required to do so. Then explain that withholding will continue based on their previous W-4 form.
  • Employees who submitted Form W-4 in any year before January 1, 2020 are not required to submit a new form unless a change is needed.
  • The form is divided into 5 steps. Employees will provide information for the steps that apply to them. Only two steps are required for all employees – Step 1 and Step 5.
  • Form W-4MN – The 2020 federal Form W-4 will not compute allowances for determining Minnesota withholding tax. Every employee that completes a 2020 Form W-4, must complete Form W-4MN for you to determine their Minnesota withholding tax.

Questions or need assistance with the new 2020 W-4? Call one of our payroll experts or call our Payroll Manager, Lori Reich, at (320) 214-2906.

Helpful Resource: IRS FAQs on the 2020 Form W-4