Beginning in 2020 the IRS changed the Federal Income Tax deduction tables and rewrote the W-4 form. The W-4 form is the document completed by employees to instruct the employer how to withhold funds from the employees check. Those funds will be deposited to the IRS by the employer in the name of the employee.
Employees hired in 2020 and after must complete the new W-4 form and the employer must use a new table to calculate taxes. These changes have been completed and are now available for ActiveApplications payroll application users that are on support.
These are the changes necessary to implement the 2020 W-4 changes.
For 2020 the Feds came up with a simplified W-4 FIT form. I will quote what is in the W-4 65 page booklet: “The 2020 Form W-4 has been redesigned to reduce the form’s complexity and to increase transparency and accuracy in the withholding system.”
Needless to say I am glad I do not have to figure out how to fill out this form. Consult your accountant or tax lawyer if you have questions about particular situations for your employees. This code change reflects my best effort at interpreting the regulations and tables in the publication 15-T.
These regulations leave in place any W-4 forms completed before 2020 so the old tables and methods have been left in place and if the employee table is not updated the calculations will remain the same.
I have run a number of tests and the FIT withheld seems to be the proper amount using the tables provided below. Please let me know if the taxes calculated are different from what you think they should be.
The responsibility for choosing the right table will reside with your payroll personnel. To implement the changes a field has been added to the employee master table. It is the FIT Code. This two digit code will override the old method of calculating taxes based on the pay type and marital status. The programs will only look at the FIT Code specified in the employee master table. It overrides any other logic.
The new method will project this pay periods wage to an annual wage and calculate the tax based on that projection and the specified table. Tables 51, 52 and 53 are the pre 2020 W-4 tax calculations. 54, 55 and 56 are the 2020 and beyond tables as defined on page 6 of the IRS Publication 15-T.
From my understanding of the publication you will complete the form enter the number of exemptions and alternate exemptions then add an additional FIT amount to withhold per period if desired. This is supposed to create results that are more reflective of the actual tax. The accuracy is determined by how the form is completed.
These tables will probably need to be updated each year. When the new publication is released find it on the IRS.gov website and key the changes.
You may also need to create more tables to satisfy some situations. The ones provided are based on what seems to be required.
Table 51 to 53 Pre 2020 W-4 forms:
2019 or before Married Filing Jointly.
2019 or before Single or Married Filing Separately
2019 or before Head of Household
Tables 54 to 56 for 2020 and After
2020 and after Married filing jointly
2020 and after Single or Married filing separately
2020 and after Head of Household
These table records will need to be added to your payroll system and the FIT code set in the Employee Master table to the correct table.
Necessary Steps to implement
- Copy new programs to Active Accounting folder.
a. Use .udb logic currently available
b. Use new routine
- Copy tables 51 to 56 to Tax Tables in company database. TTABDESC and TTABDET are tables.
- Modify Table Properties Table Name EmpMast, Ordinal Position 153, Field Name FITCode, Field Type A, Field Length 2, Decimal Positions 0, Column Heading 1 FIT, Column Heading 2 Code, Maximum input length 2, Format String blank, Command up form blank, Command down list 0, Source Table blank, Source Field 0, Current POS 0.
- Add the same field to the EMPMQTR table.
- Modify the EMPMAST table design to include FITCode as a field with nvarchar(2) in EMPMAST and EMPMQTR. Set to blank in both tables then change the design to not allow nulls .
- See the above instructions to implement the W-4 Change.
- Modify ULA to display the new field in a proper place.