Editor’s note: We do our best to update our articles with the latest information. However, state requirements change often, so please also check your state’s tax website to confirm you have the most recent requirements.
Since the Tax Cuts and Jobs Act (TCJA) went into effect, it has introduced changes that impact your employees’ income withholding. These changes have prompted the IRS to revise the federal employee withholding allowance form, also known as the W-4. Not only that, but as a result of the TCJA changes, several states have developed and now require taxpayers to submit both a state-specific W-4 and the federal W-4 to ensure their state income withholding is accurate.
As an employer, you need to know your state’s requirements, so you can determine if your employees need to submit a state W-4 in addition to the federal form.
Remind me, what is the W-4?
Employees use the W-4, officially known as the Employee’s Withholding Allowance Certificate, to claim withholding allowances from their income tax. They can claim allowances for themselves, their spouse or children. Employees’ W-4 claims determine how much money employers will withhold from their wages for taxes.
Why do my employees need to update their W-4s?
Before the TCJA, employees didn’t typically need to submit an updated W-4 to their employers unless they changed jobs, or had a life-changing event such as getting married or having kids. However, due to the number of changes the TCJA introduced, the IRS is encouraging all taxpayers to do a “paycheck checkup” to ensure they’re withholding the right amount from their paychecks. Once employees complete their paycheck checkup, they may want to submit a new W-4 to their employer, who will adjust their withholding accordingly. Depending on the state they’re in, they may need to submit a new federal and state W-4.
Why are state requirements changing?
Last December, the IRS released the 2019 W-4 to reflect some of the TCJA-related changes. However, upon this release, the IRS announced it planned to delay major revisions to the federal W-4 until 2020. Because of this delay, some states have revised their W-4s in advance to account for the TCJA changes, such as elimination of personal exemptions and reduced itemized deductions. To help taxpayers avoid under-withholding on their state income taxes, many of those states are now requiring taxpayers to submit a state-specific W-4 along with the federal W-4.
What do I need to do as an employer?
Before you encourage your employees to do a paycheck checkup, confirm the W-4 requirements for your state using this chart (and your state’s tax website). After you know what’s required, distribute and collect updated forms from your employees so you can accurately run payroll.
As a result of the TCJA tax reform, there’s been a series of W-4 updates from the IRS. It can feel like a lot to keep track of, but don’t worry, we’ve got your back. We monitor tax-related news so you can stay up to speed on changes and requirements. To make sure you don’t miss out on important updates like this, follow us on LinkedIn and Facebook. Also, check out our list of go-to payroll resources to make sure you’re up-to-date on the latest!