The IRS has been promising a new version of Form W-4, Employee’s Withholding Certificate, for some months, and it recently published it, with a brief announcement in its e-News service. The form is very similar to a draft version published earlier in 2019. Although the IRS has not yet published extensive new guidance, it did outline the changes in a FAQ list.
At that time, the IRS noted, “Allowances are no longer used for the redesigned Form W-4 to increase transparency, simplicity, and accuracy. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in the law, currently, you cannot claim personal exemptions or dependency exemptions.” One thing to keep in mind is that most states still use personal exemptions and so a separate withholding form will likely be required by employees.
According to the IRS, a few of the visual changes that were made in the last draft shared include:
- It is now a full page.
- There are no withholding allowances (which is why the title of the form changed to “Employee’s Withholding Certificate”).
- Steps 1 through 5 to guide employees through the form.
- Instructions, worksheets, and tables follow the first page.
Probably the biggest question for both companies and employees is “Does everyone have to fill out the new form?” The answer, according to the August guidance, is no. The IRS says, “Employees who have submitted Form W-4 in any year before 2020 are not required to submit a new form merely because of the redesign. Employers will continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.”
Form W-4 Resources
- The new Form W-4.
- The IRS FAQ.
- The IRS Form W-4 information page.
We will have further
updates when the IRS provides additional guidance.
Every year, the Social Security Administration takes a fresh look at its numbers and typically makes adjustments. Here are the basics for 2020 — what has changed, and what hasn’t.
First, the basic percentages have not changed:
- Employees and employers continue to pay 7.65% each, with the self-employed paying both halves.
- The Medicare portion remains 1.45% on all earnings, with high earners continuing to pay an additional 0.9% in Medicare taxes.
- The Social Security portion (OASDI) remains 6.20% on earnings up to the applicable taxable maximum amount —and that’s what’s changing:
Starting in 2020, the maximum taxable amount is $137,700, up from the 2019 maximum of $132,900. This actually affects relatively few workers; the Society for Human Resource Management notes in an article that only about 6% of employees earn more than the current taxable maximum.
Also changing is the retirement earnings test exempt amount. Those who have not yet reached normal retirement age but are collecting benefits will find the SSA withholds $1 in benefits for every $2 in earnings above a certain limit. That limit is $17,640 per year for 2019 and will be $18,240 for 2020. (See the SSA for additional information on how this works.)
Cost-of-living adjustments
Those collecting Social Security will see a slight increase in their checks: Social Security and Supplemental Security Income beneficiaries will receive a 1.6% COLA for 2020. This is based on the increase in the consumer price index from the third quarter of 2018 through the third quarter of 2019, according to the SSA.
A detailed fact sheet about the changes is available on the SSA site.
