The Tax Cuts and Jobs Act of 2017 resulted in many changes for taxpayers. One of which is the elimination of personal and dependency exemptions. The Internal Revenue Service (IRS) redesigned the W-4 form and no longer uses the concept of withholding allowances. The changes are expected to increase transparency, simplicity and accuracy of the withholding system. Read on for additional information regarding these changes, as well as links to forms and frequently asked questions.
The new form was effective January 1, 2020. Current employees are not required to complete a new W-4 form. The employee’s current form on file will be used to calculate withholding. Employees hired January 1, 2020 or later must use the new W-4 form. Employees claiming to be exempt from withholding will be required to complete the new form.
The form is divided into five steps. The only two steps required for all employees are step one and step five.
- Step 1 – Requires employee personal information (i.e. name, address, social security number, filing status).
- Step 5 – Requires employee signature and date.
- The employee can complete steps 2 – 4 if applicable.
- Completing steps 2 – 4 – results in withholding more accurately matched to tax liability. If the employee chooses not to complete steps 2 – 4, the withholding will be computed based on the filing status’s standard deduction ($24,800 for married filing jointly, $12,400 for single, and $18,650 for head of household) and tax rates, with no other adjustments.
Employees are encouraged to review current withholding selections throughout the year. The IRS provides a tax withholding estimator to assist in calculating estimated withholding as well as provide suggestions for completing a new W-4.
The IRS created a new publication – Publication 15-T, Federal Income Tax Withholding Methods – to explain how withholding is calculated with the prior year and the 2020 Form W-4.
The IRS also created a FAQ’s page to help address questions on the new 2020 Form W-4.
Each payroll software provider has addressed the changes in a different manner. Most are allowing employers to toggle between the 2019 withholding method and the 2020 withholding method on an employee by employee basis.
In 2020, employees who complete a federal Form W-4 must also complete a Form W-4MN, Minnesota Employee Withholding Allowance/Exemption Certificate, in order to determine their Minnesota income tax withholding. If the employee does not complete the Form W-4MN, employers withhold Minnesota income tax as though the employee claimed single filing status with zero allowances.
Employers can still use the allowances claimed on the employee’s federal Form W-4 if the employee used a 2019 or earlier version for Form W-4 and does not want to change their withholding for 2020.
If an employee completes a 2020 Form W-4, they must also complete a Form W-4MN to determine their Minnesota withholding allowances.
Employees must also complete the new Form W-4MN if they:
- Claim fewer Minnesota withholding allowances than federal allowances on a 2019 or prior-year Form W-4.
- Claim more than 10 Minnesota withholding allowances.
- Request the deduction of additional Minnesota withholding each pay period.
- Claim to be exempt from Minnesota income tax withholding. Your employees must meet one of the requirements listed in section 2 of Form W-4MN.
Many states have their own version of the W-4 form. Here are links to W-4 forms for Minnesota’s neighboring states:
Wisconsin: Click for form
Iowa: Click for form
North Dakota: North Dakota does not have a form comparable to the Federal Form W-4. The information on the W-4 is also used for North Dakota income tax withholding purposes.
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