The new IRS W-4 form should fix some of last year's issues with employers withholding too much--or too little--income tax from their employees. But it comes with questions some of your employees are sure to find overly intrusive.

When you hire employees, you ask them for a lot of information. But here's something you're probably not accustomed to asking: How much does your spouse make? If you have a second (or third) job, how much do you make there? How much do you make from your side hustle?

You may never have considered asking your employees about any of this, but the IRS is about to make you start. That's because the agency has just issued a new W-4 form that both new and existing employees should fill out if they want their withholding amounts to account for the new tax law. But some won't want to reveal the information the form asks them.

For example, on page 4, there's a chart employees are supposed to use if they have more than one job, or if they're married to someone who has a job (assuming the couple files jointly). The employee picks a withholding number based on the combination of his or her salary and spouse's salary. The good news is that they calculate this on a worksheet that they don't have to give you, or else by using the IRS Tax Withholding Estimator, which most experts recommend as the better option because it's more accurate. 

There are only two problems with this. First, the Estimator is not yet providing withholding recommendations for 2020--it says those will likely be available in early January. And if employees use the worksheet and enter a total amount for their and their spouses' jobs, an employer will be able to tell from that amount roughly what those spouses make.  

What if they don't want you to know?

Employees who don't want to share this information, even indirectly, have a few options. One is to simply not fill out the form, or fill out only their name, address, filing status, and Social Security number at the top of the form and then sign the bottom. The drawback is that this will lead to a withholding amount that may not be right for that employee. Or, if an employee and spouse have no more than two jobs between them, the employee can simply check a box. However, the IRS warns, if the two jobs don't have roughly similar salaries, this could lead to too much tax being withheld.

From an employer's point of view, the biggest hassle is likely to be answering employees' possibly grumpy questions about why they are now being asked to provide information that was never requested before. The simple answer is that the IRS is trying to make withholding more accurate in light of the massive changes brought about by tax reform in 2018. The IRS has a helpful FAQ that may answer many of your employees' questions, and many of yours as well. The American Payroll Association, which warns that communicating the changes to employees will be "challenging," has drafted a lengthy sample letter that you can adapt and send to employees.

No employee is obligated to complete the form. Even new hires are not legally required to do so, although they may wind up with higher withholding than they would wish. But the IRS and tax experts all recommend that all employees use the Estimator once a year to make sure they're having the right amount withheld. And they will have to use the form if they want to make changes based on what they learn.

Published on: Dec 17, 2019
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