Understand Changes to Form W-4 Before You Rehire Employees After COVID-19

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Apr 14, 2020

The constant changes to payroll and benefits legislation can have a lasting impact on businesses and their employees. Changes at local, state, and federal levels can create a ripple effect that, and managed, can negatively impact an employee’s paycheck and, ultimately, a business’s bottom line. The 2017 Tax Cuts and Jobs Act is a good example of how legislation fundamentally changed personal income taxes for millions of Americans. It removed allowances for spouses and dependents and reduced the personal exemption to zero. As a result of these changes, many taxpayers were shocked to see a smaller refund and, in some cases, actually received a tax bill.

To support and reflect changes in the Tax Cuts and Jobs Act, the Form W-4 was drastically redesigned for the first time in more than three decades by the IRS. The new five-step procedure contains some sections with minor updates and other more complex sections, which may require additional explanation by HR leaders to ensure accuracy.

As the industry continues to grapple with the new form, and its impact on employee withholding, concerns from employees and HR professionals alike can be best addressed by utilizing a holistic human capital management platform. HCM solutions can assist companies by implementing a strong communication strategy, ensuring accurate record keeping, and performing complex calculations. Well-integrated workforce management, HRIS, and payroll modules also assist HR leaders with focusing on tasks essential to growing a sustainable organization, distributing essential information, and ensuring compliance. Here are two examples of how businesses can benefit:

Improve communication reach

Although nothing will replace in-person communication with employees, the recent workplace disruption caused by the coronavirus demonstrates the importance of an enhanced communication strategy. HCM solutions allow workplace leaders to rapidly share business-critical information across an organization – no matter what time an employee’s shift is or where they are working from. Two common concerns HR and payroll specialists have specifically related to the new Form W-4:

  • How to explain the differences between the legacy and modern form to employees wishing to make election changes
  • Employee data privacy concerns related to other sources of income.

By efficiently reaching employees across the organization simultaneously, management can ensure workers are receiving a consistent message about their personal withholding situation. Organizations can also use its HCM homepage to share resources as part of its communication plan and to quickly distribute information about changes regarding workplace policies.

Assist with complex calculations

Ensuring payroll, tax, and benefits are properly calculated gives employers the peace of mind that they are complying with local, state, and federal regulations. For example, when the changes to the Form W-4 went live in California, many were left confused regarding what the correct withholding methods should be in the event the employer did NOT have a W-4 on file for an employee.

In this case, what a California employer would need to do is based on whether the employee has the 2020 Form W-4 or a legacy form on file. If a legacy form is on file, the employer should withhold state income tax using the federal elections on the legacy form. On the other hand, if the 2020 Form W- 4 is on file with no California W-4, guidance instructs the employer to withhold state tax at the highest possible rate – which is single and no adjustments. As this example shows, having a proper record-keeping and calculation solution is essential, as employers will continue to need the ability to calculate withholdings for the legacy and modernized Form W-4, along with any additional complexity state tax regulations can present.

Additionally, it’s good to point out that with the recent spike in COVID-19-related unemployment around the U.S., it’s reasonable to assume that as the pandemic begins to subside, employers are going to need to rapidly resume talent development and hiring strategies. Therefore, we will see W-4 usage increase as people get back to work.

In the end, the utilization of well-integrated workforce management, HRIS and payroll modules, will always better equip companies to be more cost-effective as they increase the reach of their communication efforts and streamline complex payroll tasks and compliance changes to minimize risks. Thus, empowering HR pros to remained focused more on driving the evolution and success of the company.

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