Question: The federal government is changing the W4 form for 2020. Will MIP support these changes?
Answer: MIP payroll and HR will be making changes to accommodate the 2020 W4 changes. This accommodation will be included as part of the year-end Tax update that will be released in January 2020.
Question: What has changed?
Answer: The W4 contains information that is used in determining how much tax to withhold for federal income tax calculations. The inputs of this were used in the formula for calculating Taxes. These inputs consisted of a filing status and a number of withholding allowances.
In 2020 these inputs will change. The selections for filing status are different. The option to put in withholding allowances has been removed. In its place there are now several fields to enter in dollar amounts. These are amounts that will be deducted for dependents and deductions (reducing taxable income) as well as the ability to add income from other sources.
The ability to add additional withholding will remain an option in both screens.
Employees who are currently working for the organization and who submitted a W4 under the pre-2020 guidelines do not have to update or submit a new W4. They can continue to use filing status and withholding allowances.
Employees who are hired after 1/1/2020 should submit their W4 information under the new guidelines.
MIP will have the ability to record W4 information under either standard. The tax calculation will be expanded to the handle this.
Question: What should be done in MIP?
Answer: If you make no changes to your W4’s payrolls in 2020 will continue to calculate using the pre 2020 W4 information. It will continue to do so until you update the employees W4 information to the 2020 standard. This information can be found in MIP under Maintain>Payroll>Employee Information>Federal Taxes Tab.
The system will not require you to change any information for existing employees and you will still have the ability to set up new employees using the pre-2020 W3 information if you want. No changes will be automatically made to anyone’s W4 information in the process of the upgrade, though the display of information will be different.
Below is a draft image of what the new federal tax input will look like in both payroll and HR.
In both forms there is now a separation of the pre and post 2020 W4 information. Selection of the W4 completed prior to 2020 box will determine which section the information can be recorded.
There are several new fields on available. MIP does not do any calculations as to what should go into the form. The employees should use the calculation sections in the W4 to determine the amount that goes into each field.
IRS W4 Withholding Certificate Draft>
There is also a new checkbox for exemption from withholding. This box is intended to simplify entering for information for people who do not have any tax withheld. This can be useful for Clergy, Tribal Council members or anyone else that needs to report income but is not required to have any tax withheld from that income. Checking this box does NOT make them exempt from Federal taxes. FIT subject earnings will still be reported and print on the 2020 W2 but no tax will be withheld.
Question: Are there changes in the tax tables Calculation Method?
Answer: Starting with 2020 there is a slight difference in the calculation method used in the tax tables. Prior to 2020 the subject earnings were calculated and compared to a formula based on the pay frequency (weekly, biweekly etc.). Under the new guidelines the amount of subject earnings are multiplied to get an annualized amount and compared to the annualized table. Then the amount is divided to get the amount of tax to be withheld on the payroll. The difference in this calculation process can result in slightly different amounts of tax withheld compared to the old method. The amounts are usually less than $1.
Example: An employee earns $2000 per pay period and is paid semi-monthly. The system will take that $2000 and multiply it by 24 (number of semi-monthly pay periods in a year) to get an annual amount of $48,000. It will calculate the annual tax they would pay on that $48,000 based on the annual table. Take that amount and divide it by 24 and withhold that amount from the check.
Question: Will these changes impact the 2019 W2’s produced in January 2020?
Answer: No. These changes do not affect W2’s in any way. The only potential impact is to the tax calculations starting in 2020.
Question: What happens if I don’t install the year end update before running payroll in 2020?
Answer: You will continue to calculate using the 2019 tax tables and will not have option to enter W4 information under the new standards. If you have new employees you will have to make a selection under the old standards.
Question: If I get W4 for a new employee under the old form can I still use that?
Answer: The IRS says that all employees hired after 1/1/2020 should use the new form. It will still be possible to put information into MIP under the old form and it will calculate taxes according to the old form.
Question: Will these changes affect producing forms out of Aatrix™?
Answer: The Federal W4 report will be updated to incorporate the new changes. This will not affect any normal state or federal tax forms that are filed.