In December 2019, the IRS released its new Form W-4, Employee’s Withholding Certificate for 2020. Prompted by the 2017 Tax Cuts and Jobs Act, the IRS made major revisions designed to make income tax withholding easier for employees, including changing the name from Employees’ Withholding Allowance Certificate.
The new form no longer has withholding allowances, which were tied to personal exemptions. Instead, employees can adjust the specific amounts of taxes withheld and can increase or decrease the amount of income subject to tax withholding.
California, meanwhile, hasn’t updated its Form DE-4, Employee’s Withholding Allowance Certificate or changed its withholding methods, which raises the question for employers — what do we do about income tax withholdings now?
The Employment Development Department (EDD) has stated that since allowances are no longer included in the redesigned Form W-4, the form cannot be used for California purposes. So, new hires and existing employees who wish to make changes to their withholdings must submit both the new Form W-4 and Form DE-4. Employees who submitted a Form W-4 before 2020 are not required to submit a new form if they have no changes to their withholding. Likewise, if employees want to keep the same number of California withholding allowances, a new Form DE-4 is not needed. Employers should continue to calculate withholding based on previously submitted forms.
Note: California has now updated their Form DE-4; however, the instructions remain the same — employees need to submit both the Form W-4 and Form DE-4 to make changes to their withholdings.
You can read more about the new Form W-4 in the new Form W-4 FAQs and IRS Publication 15-T. The IRS has also launched a new and improved Tax Withholding Estimator, designed to help workers target the refund they want by having the right amount of federal income tax taken out of their pay. Read more about California withholding schedules on the EDD’s website.