Small U.S. employers preparing their first 2020 payroll do not need to collect a new Form W-4 from every existing employee merely because the form has changed. The IRS’s 2020 Employer’s Tax Guide, dated December 23, 2019, says valid earlier forms can remain in use. Newly hired employees first paid wages after 2019 must use the redesigned form, as must other employees changing their withholding. That leaves payroll handling two formats rather than replacing the old one overnight. [S2]

The 2020 form drops withholding allowances and asks for dollar amounts instead. Those amounts do not all mean the same thing. Step 3 gives an annual reduction in tax withholding for credits. Steps 4(a) and 4(b) increase or decrease the annual wages used to calculate withholding, while Step 4(c) adds tax to withhold each pay period. Payroll must distinguish adjustments to taxable wages from adjustments to tax, and annual amounts from amounts per paycheck. [S2][S3]

Consider an illustrative employee with $2,600 entered in Step 3 and 26 biweekly pay periods. The IRS’s automated-payroll worksheet divides that annual amount by the number of periods, producing a $100 reduction in each period’s tentative withholding, subject to a zero floor. If the employee also enters $20 in Step 4(c), payroll adds $20 after applying the credit. It does not divide that $20 by 26. This example explains the units and sequence, not the employee’s eligibility for a credit or final tax bill. [S3]

The Step 2 multiple-jobs checkbox selects higher-withholding tables, according to Publication 15-T. If an employee uses one of the other two options in Step 2, the extra amount appears with other additional withholding in Step 4(c). Steps 2 through 4 need entries only when relevant to the employee’s situation; a form containing personal details in Step 1 and a dated signature in Step 5 is not necessarily incomplete. [S3]

Keeping an earlier W-4 does not mean keeping an earlier year’s tax tables. The 2020 instructions in Publication 15-T cover both versions: manual-payroll tables are separated by the form’s year, while the automated percentage-method worksheet branches according to whether a 2020-or-later form has been submitted. For a small payroll team, retaining the form’s year alongside its entries would help route each worker to the right calculation. Employers may ask existing staff for redesigned forms, but the IRS says they should explain that replacement is not required merely for the redesign. [S2][S3]

A missing form has its own transition rule. A new employee first paid in 2020—including someone rehired that year—who supplies no W-4 is treated as selecting Single or Married filing separately, with no entries in Steps 2, 3 or 4 of the new form. An employee paid in 2019 who failed to provide a form continues under the old single-with-zero-allowances treatment. [S2][S3]

Source documents

  1. Publication 15 (2020), (Circular E), Employer’s Tax Guidehttps://www.irs.gov/pub/irs-prior/p15--2020.pdf
  2. Publication 15-T (2020), Federal Income Tax Withholding Methodshttps://www.irs.gov/pub/irs-prior/p15t--2020.pdf