8517 / How did suspension of the personal exemption impact employer withholding requirements and Form W-4 for employees?

Late in 2019, the IRS released a simplified, final version of the new Form W-4. The new Form W-4 uses a multi-step process to calculate withholding. Form W-4 now asks for information regarding: (1) the employee’s personal (identifying) information, (2) whether the employee has multiple jobs or a spouse who works, (3) information about any dependents, (4) optional other withholding adjustments (such as extra withholding or to account for itemizing deductions).

Beginning in 2020, new employees are required to complete the final Form W-4. Existing employees with an old Form W-4 on file are not required to complete the new form, but employers are permitted to ask them to complete the new Form W-4.¹ Under certain “change in status” events, however, employers are required to provide employees with a new form.

The IRS and Treasury have proposed regulations on the new withholding requirements that apply given the suspension of the personal exemption for 2018-2025. The regulations confirm that employers are not required to provide existing employees with the redesigned Form W-4. For employees who had a Form W-4 on file prior to 2020, withholding can continue to be based on that form. Employees, however, now have the option of requesting that their employer withhold additional tax based on outside income. Employees can use the new IRS tax withholding estimator to help them accurately fill out Form W-4.